When Congress passes a tax bill with a name like the “One Big Beautiful Bill Act” (OBBBA), you know it’s going to shake things up. And for business owners, this legislation brings back a powerful tool: 100% bonus depreciation—permanently.
If you’ve ever wished you could write off the cost of a new piece of equipment, software, or even certain improvements to your facilities in one shot—this is your chance. But as with all things IRS-related, the devil is in the details. Let’s break down what bonus depreciation is, why it matters, and what the new law means for you.
A Quick History Lesson: From Temporary Boosts to Permanence
Bonus depreciation isn’t new. It first showed up in 2002’s Job Creation and Worker Assistance Act as a way to jumpstart the economy after a downturn. Originally, businesses could deduct 30% of qualified property up front. Over the years, that rate bounced around—50% here, 100% there—depending on the state of the economy.
The Tax Cuts and Jobs Act (TCJA) of 2017 supercharged the incentive by allowing businesses to immediately deduct 100% of the cost of eligible property. The catch? It was scheduled to phase out, dropping year by year until disappearing entirely after 2026.
The OBBBA has now made 100% bonus depreciation permanent for property purchased and placed in service after January 19, 2025. That means businesses can finally plan long-term around this deduction without worrying about expiration dates.
Why Bonus Depreciation Matters for Your Business
Think of bonus depreciation as a shot of espresso for your cash flow. Instead of depreciating assets over several years, you get the full deduction right away. That means:
- Immediate tax savings – Lower taxable income now, freeing up cash.
- Stronger cash flow – More money in your pocket to reinvest.
- Encouragement to grow – A tax incentive to modernize your equipment, upgrade systems, or expand operations.
But here’s the kicker: timing and strategy matter. For example, if you also qualify for the Section 199A deduction (QBI deduction), writing off too much in bonus depreciation could reduce your overall QBI benefit. In some cases, lowering income helps; in others, it hurts. That’s why businesses—whether small manufacturers, government contractors, or high-net-worth investors—need to model scenarios carefully.
What Qualifies for Bonus Depreciation?
The IRS keeps a tight list of what makes the cut:
- Tangible property with a recovery period of 20 years or less (e.g., vehicles, equipment, computers, office furniture).
- Software (off-the-shelf, not custom-developed).
- Qualified improvements to nonresidential buildings (think retail, restaurants, and leasehold improvements).
- Used property, as long as it’s “new to you” and not acquired from a related party.
What doesn’t qualify? Real estate (27.5 or 39-year property) still isn’t eligible, except where OBBBA introduces a new twist: Qualified Production Property.
The New Twist: Qualified Production Property
Here’s where OBBBA gets interesting. Starting July 4, 2025, businesses can fully expense new factories, certain improvements to existing factories, and other designated structures that meet strict criteria.
To qualify, the property must:
- Be an integral part of a Qualified Production Activity (manufacturing, refining, agricultural production).
- Be built in the U.S. (or U.S. territories).
- Have original use starting with the taxpayer.
- Be placed in service before January 1, 2031.
This provision is clearly designed to bring manufacturing back to U.S. soil. For small and mid-sized manufacturers, it’s a game-changer. Imagine building a new facility and writing off the entire cost in year one—it’s a massive tax shield.
Special Rules You Can’t Ignore
Like most things in the tax code, there are caveats:
- Luxury autos: Cars and trucks over certain price thresholds have caps on depreciation, but bonus depreciation bumps those caps up by $8,000.
- Alternative Minimum Tax (AMT): Thankfully, property with bonus depreciation is exempt from AMT adjustments, keeping things consistent.
- Opting out: You can elect out of bonus depreciation, but reversing that decision later requires IRS approval—so plan wisely.
- Recapture rules: If you sell property or change its use within 10 years, some of that bonus depreciation could come back as ordinary income.
And don’t forget about Section 179. This deduction also allows immediate expensing, but with dollar limits and recapture rules if business use drops below 50%. Bonus depreciation, by contrast, has no dollar cap, making it especially attractive for large purchases.
What This Means for Different Types of Clients
At JS Morlu, we see a wide range of clients, and bonus depreciation touches them all differently:
- Government Contractors – Bonus depreciation helps offset income spikes from new contracts, especially when compliance costs climb.
- High-Net-Worth Individuals – Those with pass-through entities (like LLCs and S-Corps) must weigh how depreciation interacts with the QBI deduction and estate planning.
- Non-Profits – While not directly taxable, related business income (UBIT) considerations may apply when non-profits invest in equipment.
- Home Healthcare Providers – Investments in vehicles, medical equipment, and technology systems can now be fully written off immediately.
- Small Businesses – Bonus depreciation can be the difference between struggling with cash flow and having the capital to expand.
How to Use Bonus Depreciation Strategically
Here’s the bottom line: bonus depreciation is powerful, but it’s not always a “take it and run” deduction. Sometimes spreading deductions across years provides a smoother tax outcome.
For example:
- A manufacturer might claim bonus depreciation on new machinery but opt out for leasehold improvements to balance taxable income.
- A professional services firm might stagger purchases across years to avoid shrinking QBI deductions.
- A government contractor could time equipment purchases around contract billing cycles for maximum tax efficiency.
Final Thoughts
The permanent reinstatement of bonus depreciation is more than just a tax break—it’s a tool for long-term financial strategy and growth. Whether you’re building a new factory, upgrading medical equipment, or purchasing new technology, these rules can significantly impact your bottom line.
At JS Morlu, we help businesses, government contractors, and high-net-worth individuals navigate these complexities so they can maximize benefits while staying compliant.
👉 Thinking about new investments for 2025 and beyond? Contact JS Morlu today for a personalized consultation and let’s map out the smartest tax strategy for your business.