Bonus Depreciation is Back! What Else Did the OBBBA Change About Depreciation?

The One Big Beautiful Bill Act reshaped much of the tax landscape. We summarized most of the changes here, but today we want to take a deep dive into just one facet of the bill: depreciation.

In this article, we will answer the following questions:

• What did the One Big Beautiful Bill Act change about depreciation?
• How did the One Big Beautiful Bill Act change bonus depreciation?
• What is qualified production property?
• How did the One Big Beautiful Bill Act change Section 179 expensing?
• Is bonus depreciation or Section 179 better?
• What else should you incorporate into year-end tax plans?

What Did the One Big Beautiful Bill Act Change About Depreciation?

The One Big Beautiful Bill Act (OBBBA) made three distinct changes to depreciation:

1. It brought back 100% depreciation indefinitely.
2. It temporarily expanded bonus depreciation to a new category of property: qualified production property.
3. It increased the expensing thresholds under Section 179.

Let’s talk about each one.

How Did the One Big Beautiful Bill Act Change Bonus Depreciation?

The OBBBA restored 100% bonus depreciation and made it a permanent addition to the tax code.

Prior to recent legislation, bonus depreciation was being phased out and was scheduled to be gone by the year 2027. But the OBBBA brought back bonus depreciation and restored it to the full 100% deduction starting this year. Keep in mind that bonus depreciation applies to both new and used assets provided that the taxpayer has not previously used the asset in a business.

*for property placed in service after January 19, 2025

Bonus depreciation applies to most new or used tangible property (furniture, equipment, vehicles, etc.) with a MACRS recovery period of 20 years or less, plus qualified improvement property (QIP), which is an improvement made to the interior of a nonresidential building. And new with the OBBBA, bonus depreciation now applies to qualified production property — at least temporarily.

What Is Qualified Production Property?

Qualified production property (QPP) is a new classification of property established by the OBBBA. The OBBBA not only defines what QPP is, but it also makes QPP temporarily eligible for bonus depreciation.

For property to qualify as QPP, all the following must be true:

• The property must be nonresidential real property located in the US.
• Construction of the property must begin after January 19, 2025, and before 2029, and it must be placed in service before 2031.
• The original use of the property must begin with the taxpayer.
• The taxpayer must make the election to treat this type of property as QPP.
• The property must be used by the taxpayer as an integral part of a qualified production activity. A qualified production activity is the manufacturing, production, or refining of tangible personal property (with certain stipulations).

Making QPP eligible for bonus depreciation is a big win for manufacturers because it lets them write off plant costs right away instead of over 39 years.

There are two main downsides to the QPP election, though.

1. The definition of QPP specifically excludes portions of buildings that are used for office, administrative, engineering, research, software development, or sales functions, so you may need to commission a cost segregation study to correctly classify QPP costs.
2. Taxpayers will be required to recapture that accelerated depreciation if they stop using the property for a qualifying production activity within 10 years.

Neither obstacle is too concerning, but you should talk to your tax advisor before making any elections to ensure you’re doing everything you need to comply with the new laws. Keep in mind that state conformity with the federal bonus depreciation rules varies.

How Did the One Big Beautiful Bill Act Change Section 179 Expensing?

Section 179 also got a boost with the passage of the OBBBA.

The OBBBA raised both the Section 179 expensing limit and its phase-out threshold.

**adjusted for inflation

This means that in 2025, taxpayers can immediately deduct 100% of up to $2.5 million in property purchases. If total asset purchases exceed $4 million, the Section 179 deduction will begin to phase out, and will be fully phased out once asset purchases reach $6.5million.

Is Bonus Depreciation or Section 179 Better?

Knowing when to use bonus depreciation and when to use Section 179 — or when to use neither — is a common tax planning consideration. Here are a few things your tax advisor will talk to you about when determining which depreciation method to use:

• Bonus depreciation can reduce your taxable income below zero, but Section 179 cannot: If you want to reduce taxable income below zero, bonus depreciation is your only option. This would generate an NOL that you can use to offset future earnings. Just keep in mind that NOLs cannot offset more than 80% of taxable income.
• You must opt out of bonus depreciation: Bonus depreciation is automatically applied to eligible assets, but you can opt out by attaching a statement to your federal tax return. The caveat, though, is that you can’t pick and choose assets for bonus treatment; you must opt out of entire asset classes (i.e., all 7-year MACRS assets). This can make Section 179 more appealing since you can apply Section 179 to specific assets.
• Entity Classification: Estates, Trusts, and certain noncorporate lessors are not eligible to claim a 179 deduction on their return so passthrough entities should take into account their owner’s classification when evaluating between bonus and 179.
• Accelerated depreciation isn’t always the goal: Not all businesses need or want to accelerate depreciation. Some could be better off saving those deductions to use in future years. This might be the case if (1) your business is already reporting a tax loss, (2) you anticipate your tax rate will rise in the future (in which case you’d get more bang for your deduction buck by waiting), or (3) you simply want to report less volatile taxable income, which might make the business look more stable to investors or lenders.
• Section 179 is a lot less enticing but can still be useful: Bonus depreciation is so strong in 2025 that Section 179 isn’t as enticing as it used to be. But Section 179 can still be useful (1) to use on property not eligible for bonus depreciation, (2) so that you can accelerate depreciation only on certain assets, or (3) to optimize state tax outcomes. Which brings us to…
• State tax planning matters, too: Not all states conform to federal bonus and Section 179 depreciation rules. Consider how your elections will affect your state taxes.

What Else Should You Incorporate into Year-End Tax Plans?

Depreciation isn’t the only thing you’ll want to think about when year-end tax planning. When working with your advisor, you’ll also want to consider:

• The new phase-outs and thresholds for deductions, credits, and exemptions
• What credits are available and which have expired
• The new expanded estate tax exemption
• The temporarily expanded SALT deduction cap
• Which states allow pass-through entity taxes (PTET) and how they work
• New state expectations for collecting and remitting sales taxes

Turning Depreciation Changes into Opportunity

The OBBBA’s new depreciation rules could have a significant impact on cash flow, deductions, and long-term planning. Now is the time to evaluate your options. Contact your CRI advisor today to discuss how these changes may shape your year-end tax strategy and beyond. With proactive planning, you can turn these new requirements into opportunities for more informed financial decisions.