The “One Big Beautiful Bill” (OBBB) significantly enhances both bonus depreciation and Section 179 expensing, giving businesses powerful tools to recover capital costs more quickly and improve cash flow.

Bonus Depreciation

Bonus depreciation is permanently restored to 100% for qualified property for 2025. Businesses can fully deduct the cost of most new and used tangible personal property, such as equipment, machinery, computers, qualified improvement property, and certain vehicles. There is no annual limit, and bonus depreciation is available to businesses of all sizes. It applies automatically unless the taxpayer elects out.

Depreciation of production property

Coupled with Bonus Depreciation is a new provision from the OBBB that allows the election of real property (historically depreciated over 39 years) to be 100% expensed starting in 2025. This is limited to newly built, qualified production property that is constructed between January 15, 2025, and January 1, 2029, and placed in service before 2031. The production property must be nonresidential real property, original to the taxpayer, in the U.S., and integral to production activity.

Section 179 Expensing

The bill also expanded Sec. 179 expensing to allow $2.5 million of immediate deductions with a phaseout threshold beginning at $4 million and a full phaseout at $6.5 million, for property placed in service in 2025. These thresholds will be indexed for inflation beginning in 2026. Section 179 applies to many of the same assets as bonus depreciation but also includes property bonus depreciation does not cover, such as:

• HVAC, fire protection, and alarm systems
• Off-the-shelf software
• Furniture used in lodging facilities

On the other hand, bonus depreciation applies to specific items that are not eligible for Section 179, such as land improvements (e.g., parking lots, fences) and used property purchased from unrelated parties.

Tax Implications

A key distinction lies in how each provision interacts with taxable income:

• Section 179 is limited to the taxpayer’s taxable income and cannot create or increase a net loss. Unused amounts can be carried forward.
• Bonus depreciation has no income limitation and can be used to create or increase a net operating loss (NOL), offering greater flexibility, particularly for businesses in growth-heavy years.

These enhancements under OBBB offer expanded and permanent options for capital investment planning and tax efficiency.