John Malone, JD

Bonus Depreciation After OBBB: What Business Owners Need to Know Before Year-End

The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, dramatically reshaped bonus depreciation rules. Previously, businesses were facing a steep phase-down from the 100% bonus rate that began in 2023. OBBB reverses that decline in some areas but also introduces new restrictions. This means year-end planning for 2025 requires a fresh look at asset purchases, placed-in-service dates, and long-term modeling.

In this post, we’ll review:

What bonus depreciation rules looked like before OBBB,
How the new law modifies depreciation rates,
Interaction with Section 179 expensing,
What business owners should prioritize before December 31, 2025.

Background: Pre-OBBB phase-out

Under the Tax Cuts and Jobs Act (TCJA), businesses enjoyed 100% bonus depreciation for qualified property placed in service between September 27, 2017, and December 31, 2022. Starting in 2023, the rate began to phase down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% thereafter (Source: IRC §168(k), as amended by TCJA 2017).

By mid-2025, taxpayers were expecting to apply only 40% bonus depreciation on new equipment placed in service that year. OBBB changed this trajectory which is a BIG win for taxpayers.

Definition Block: Bonus Depreciation (IRC §168(k))

Bonus depreciation is an additional first-year deduction allowing businesses to recover the cost of qualified property more quickly than through regular depreciation. Under §168(k), it applied to most new and used tangible property with a recovery period of 20 years or less, certain software, and qualified improvement property.

Key takeaway: Without OBBB, bonus depreciation was fading out, limiting the immediate tax savings available to businesses investing in capital assets.

OBBB’s new rules for 2025 and beyond

OBBB resets bonus depreciation rates:

For property placed in service after December 31, 2024, and before January 1, 2028, the rate is restored to 100% (Source: OBBB §131(a), July 4, 2025).
Beginning in 2028, the phase-out resumes: 80% in 2028, 60% in 2029, 40% in 2030, and 20% in 2031.

Qualified improvement property (QIP) continues to be eligible, fixing prior ambiguity.

Key takeaway: For 2025–2027, businesses again enjoy full expensing of qualified property, creating a powerful incentive for immediate investment.

Year-end planning considerations

Placed-in-service date matters: To qualify for 100% bonus under OBBB, assets must be purchased AND placed in service by after the date of enactment. Thus - if you purchased assets in late 2024 but placed in service in 2025, you are out of luck.
Leased property caution: Property acquired under certain leasing structures may not qualify. Review terms carefully.

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Leverage - even if you finance your equipment or asset purchases, the full purchase price would still be fully deductible under the 100% bonus depreciation rules.

Key takeaway: Businesses should treat 2025–2027 as a three-year window to optimize capital investment strategies.

Quick example

Example
A construction firm purchases $1,500,000 of qualifying machinery in November 2025 and places it in service the same month.

With OBBB, the firm can deduct 100% of the $1,500,000 immediately in 2025.
Without OBBB, only 40% ($600,000) would have been deductible up front, with the balance depreciated over several years.
Assuming a 21% federal corporate tax rate, the OBBB provision produces a $315,000 immediate tax savings versus only $126,000 under the prior law.

Assumptions

Equipment qualifies under §168(k).
Firm has sufficient taxable income to absorb the deduction.
No Section 179 expensing applied.

Action steps for business owners

Prioritize major asset purchases and ensure they are placed in service before year-end.
Compare Section 179 and bonus depreciation strategies for 2025 purchases. There are often state differences between the two, especially for states that do not automatically confirm to tax law changes.
Model cash flow impacts of taking 100% bonus now versus spreading deductions.
Prepare for the 2028 phase-down and evaluate whether to accelerate additional investments before then.
Document placed-in-service dates and supporting invoices in case of IRS scrutiny.

Structured summary

OBBB (July 2025) restores 100% bonus depreciation for property placed in service from 2025 through 2027.
A new phase-down schedule begins in 2028, dropping by 20% annually until 2031.
Section 179 expensing limits remain modest; large investments benefit most from bonus depreciation.
Year-end placed-in-service timing is crucial, especially given supply chain risks.
For 2025–2027, businesses should treat bonus depreciation as a powerful planning tool before phase-down returns.