The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced reforms to the federal framework for capital cost recovery. Chief among these changes is the permanent reinstatement of 100% bonus depreciation, along with new expensing opportunities for certain production-related real estate. Together, these provisions significantly influence how businesses plan, finance, and implement major capital investments.
Background: Understanding Bonus Depreciation Under §168(k)
Bonus depreciation allows businesses to deduct a substantial portion of the cost of qualified assets in the year they are placed in service. It accelerates cost recovery and significantly improves the timing of tax deductions, which has historically supported investment in machinery, equipment, technology, and facility upgrades.
The value of full expensing becomes apparent when compared with slower methods such as straight-line depreciation. A five-year depreciation method spreads deductions over multiple years, which reduces their present value. In contrast, 100% bonus depreciation front-loads the deduction, offering a more impactful financial benefit in the first year the property is placed in service.
The TCJA Phase-Down: What the OBBBA Was Designed to Address
Prior-Law Uncertainty
Before the OBBBA, the Tax Cuts and Jobs Act of 2017 had set a gradual phase-down of bonus depreciation beginning in 2023. This schedule would have reduced the deduction rate annually and ultimately eliminated it by 2027.
The Scheduled Phase-Down (Now Eliminated)
The pre-OBBBA percentages were:
- 2022: 100%
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027 and beyond: 0%
This declining structure influenced the timing of capital expenditures.
OBBBA’s Core Reform: Permanent 100% Bonus Depreciation
The OBBBA eliminated the phase-down entirely and reinstated full expensing on a permanent basis.
Effective Dates and Applicability
The permanent 100% rate applies to qualified property acquired and placed in service after January 19, 2025.
Property placed in service earlier in 2025 remains subject to the 40% rate previously scheduled under the TCJA.
This permanence makes accelerated cost recovery a stable feature of the federal tax code rather than a temporary incentive.
Qualified Property Under the New Law
The OBBBA preserves the broad eligibility rules for bonus depreciation, including:
- Tangible property with a recovery period of 20 years or less
- Certain qualified used property
- Equipment, machinery, software, and similar items
Permanent Treatment of Qualified Improvement Property (QIP)
The Act permanently ensures that Qualified Improvement Property placed in service after January 19, 2025 qualifies for 100% bonus depreciation, with no future phase-downs. This cements QIP as a highly favorable category for businesses undertaking interior improvements.
Navigating the Unique 2025 Transition Period
The Importance of Placed-in-Service Timing
The applicable bonus depreciation percentage for 2025 hinges on the exact date the property becomes ready and available for use.
The “Nineteen-Day Valley”: Jan 1–19, 2025
For property placed in service between January 1 and January 19, 2025, the bonus depreciation rate remains 40%.
For property placed in service on or after January 20, 2025, the full 100% rate applies.
Acquisition Date Considerations
If a binding contract to acquire property was signed before January 20, 2025, that property generally does not qualify for the restored 100% rate and remains subject to the prior-law phasedown percentages. Accurate documentation of contract and service dates is therefore essential for compliance.
OBBBA’s Expansion of Expensing: New 100% Write-Off for Production Real Property
One of the most consequential expansions under the OBBBA is the temporary introduction of 100% expensing for certain nonresidential real property tied to domestic production activities.
Overview of Qualified Production Property (QPP)
New IRC §168(n) allows full expensing for Qualified Production Property, which includes U.S.-based nonresidential structures used directly in manufacturing, refining, or production activities.
Requirements for QPP
Property Type:
Nonresidential real property integral to production activities. Office, administrative, and other non-production spaces do not qualify.
Construction Timing:
- Construction must begin after Jan 19, 2025 and before Jan 1, 2029
- Property must be placed in service before Jan 1, 2031
Used Property:
May qualify if acquired after Jan 19, 2025 and not used in production between Jan 1, 2021 and May 12, 2025.
Section 179 Expensing Enhancements Under OBBBA
The Act also strengthened Section 179, an expensing provision frequently used by small and mid-sized businesses.
Increased Deduction Limits
For tax years beginning after December 31, 2024:
- Maximum deduction: Increased to $2.5 million
- Phase-out threshold: Increased to $4 million
These adjustments allow businesses to immediately expense a larger portion of qualifying property before turning to bonus depreciation for remaining basis.
Conclusion
The One Big Beautiful Bill Act (OBBBА) marks a pivotal shift in the federal approach to capital cost recovery. By permanently restoring 100% bonus depreciation and introducing new expensing opportunities, most notably the temporary 100% write-off for Qualified Production Property, the Act establishes a more predictable and generous environment for business investment. These reforms allow companies to recover capital costs more quickly and support long-term planning without the uncertainty of scheduled phasedowns.
The OBBBA also enhances Section 179 expensing, providing small and mid-sized businesses with expanded flexibility to deduct a greater portion of their capital expenditures. Taken together, these provisions form a comprehensive framework that strengthens incentives for modernization, expansion, and equipment upgrades.
Overall, the changes brought about by the Act create a stable and investment-friendly tax framework that supports sustained economic growth and long-term strategic planning.
Disclaimer and Important Information
This content is not personalized tax advice. If you’re interested in these topics, we encourage you to reach out to us or a qualified tax professional for advice tailored to your specific situation. Nothing in this content restricts anyone from disclosing tax treatment or structure. If you need personalized tax advice, consult us or another tax professional. This information is general and subject to change; it’s not accounting, legal, or tax advice. It may not apply to your unique circumstances and requires considering additional factors. Please contact us or a tax professional before taking any action based on this information. Tax laws and other factors may change, and we are not obligated to update you on these changes
