100% Bonus Depreciation: What It Means for Businesses and Financial Institutions

With the enactment of the One Big Beautiful Bill Act, significant changes were made to bonus depreciation. The legislation permanently restores 100% bonus depreciation for qualifying property placed in service after January 19, 2025. This shift from the prior 40% rate creates meaningful tax planning opportunities for businesses and financial institutions.

Introduction to 100% Bonus Depreciation

100% bonus depreciation is a powerful tax incentive that allows businesses to immediately deduct the full cost of certain capital expenditures, rather than spreading those deductions over several years. This provision is designed to encourage investment in new equipment, technology, and property. It boosts after-tax cash flow and reduces the upfront cost of business expansion.

By taking advantage of this accelerated deduction, companies can reinvest savings into operations, growth, and workforce development. Understanding the mechanics and advantages of 100% bonus depreciation is essential for maximizing an organization's financial health.

What Qualifies for 100% Bonus Depreciation

To benefit from 100% bonus depreciation, you must ensure that the property meets all required eligibility criteria. Qualified property generally includes tangible personal property with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System (MACRS), computer software, water utility property, Qualified Improvement Property (QIP), and Qualified Production Property (QPP). These assets must be placed in service after January 19, 2025.

Under QIP, eligible improvements must be made to the interior of non-residential real property after the building’s initial placed-in-service date, but do not include building enlargements, elevators, or structural components.

QPP encompasses nonresidential real property (39-year MACRS) located in the United States or its possessions and used as an integral part of a Qualified Production Activity (QPA), which is the manufacturing, production (limited to agricultural and chemical), or refining of a "qualified product". The original use of QPP must begin with the taxpayer, and construction must start after January 19, 2025, and before January 1, 2029. The property must be placed in service before January 1, 2031.

A “qualified product” is any type of tangible personal property that is substantially transformed by the qualified production activity, with one exception. If the tangible personal property is food or beverages prepared in a facility that also has a retail outlet for selling them, the food or beverage is not considered a qualified product, and the associated assets cannot be considered qualified products. 

Identifying qualified property accurately is essential to receive the full benefit of immediate expensing. Businesses should implement a systematic approach to verify that assets meet all qualifying criteria before acquisition decisions.

Property that Does Not Qualify

Certain types of property are specifically excluded from 100% bonus depreciation. These include property used outside the United States, structural building property primarily used for lodging, and property purchased from related parties. Assets required to use the Alternative Depreciation System (ADS), such as tax-exempt use property and imported property covered by trade agreements, do not qualify. Understanding these exclusions can help your business avoid costly errors in tax reporting and ensure compliance with IRS regulations.

Why This Matters for Businesses

The permanent restoration of 100% bonus depreciation has a profound impact on business tax strategies. By enabling full expensing in the year of acquisition, companies can substantially reduce their taxable income, freeing up capital for strategic investments. This immediate tax benefit enhances liquidity, supports expansion, and improves a company’s ability to respond to market opportunities. For organizations planning significant capital expenditures, this provision can serve as a cornerstone of their long-term financial planning.

Implications for Financial Institutions

Financial institutions, including banks, credit unions, and leasing companies, stand to benefit uniquely from 100% bonus depreciation. The ability to immediately expense qualifying assets, such as IT infrastructure, branch renovations, and security systems, can bolster operating efficiency and reduce tax liability. Institutions can pass on benefits to clients through tailored advisory services, helping business customers maximize their own tax savings. Integrating bonus depreciation strategies into financial planning services sets institutions apart as forward-thinking partners, deepening client relationships and driving growth.

Strategic Planning Tips

With the recent permanence of 100% bonus depreciation, now is a great time to maximize your benefit by aligning your tax strategy with acquisition timing. To fully leverage this, organizations should adopt a proactive approach by:

• Conducting regular reviews of fixed asset policies and capitalization thresholds to align with current tax rules
• Maintaining accurate records to document when property is placed in service and confirm all eligibility requirements are met
• Synchronizing acquisition timing with broader tax planning objectives to maximize deduction opportunities each year
• Coordinating bonus depreciation planning with Section 179 elections and state tax conformity to ensure a cohesive strategy
• Utilizing scenario modeling and cash flow projections to assess the impact of accelerated deductions on financial performance

Ongoing collaboration with tax and financial professionals is essential to ensure compliance and to optimize the benefits derived from bonus depreciation.

Avoid Common Pitfalls

Effective management of bonus depreciation demands rigorous attention to compliance. Common errors include asset misclassification, failure to track service dates, and noncompliance with state rules. Organizations should establish thorough review procedures, implement staff training, and seek professional consultation before significant purchases. These measures help maintain compliance and maximize tax efficiency.

Final Thoughts

The permanence of 100% bonus depreciation is a game-changer for businesses and financial institutions. Update your asset management strategies and consult your tax advisor to confirm qualified property and optimize your tax and cash flow strategies for 2026 and beyond.

Consult your CRI Advisor to determine if your assets qualify for 100% bonus depreciation and to optimize your tax savings.