From 100% to Phase-Out: Bonus Depreciation Rules Under the OBBB Tax Law

The One Big Beautiful Bill (OBBB), enacted on July 4, 2025, temporarily restored 100% bonus depreciation but also set in motion a new phase-out schedule. This means business owners now face a three-year window to capture full expensing before deductions begin to decline again in 2028. Understanding these rules is essential for timing major investments, managing taxable income, and planning long-term strategy.

In this post, we’ll review:

• How bonus depreciation works
  
  
• The restored 100% deduction under OBBB
  
  
• The new phase-out schedule beginning in 2028
  
  
• Planning strategies to maximize benefits
  
  

Background: Bonus depreciation under prior law

Under IRC §168(k), bonus depreciation allows businesses to deduct a percentage of the cost of qualifying property in the year it is placed in service. TCJA 2017 granted 100% bonus depreciation through 2022 but scheduled a phase-down starting in 2023: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027.

By early 2025, businesses were preparing for only 40% bonus depreciation on new purchases. OBBB changed that trajectory.

Definition Block: Qualified Property (IRC §168(k)(2))

Qualified property generally includes tangible property with a recovery period of 20 years or less, certain computer software, water utility property, and qualified improvement property (QIP). Used property can also qualify if it meets acquisition requirements.

Key takeaway: Before OBBB, businesses faced a shrinking deduction window that would have effectively eliminated bonus depreciation by 2027.

OBBB restores 100% bonus depreciation

OBBB reinstates 100% bonus depreciation for property placed in service after December 31, 2024, and before January 1, 2028 (Source: OBBB §131(a)). This applies broadly to new and used qualified property, including QIP.

Key takeaway: For tax years 2025, 2026, and 2027, businesses can deduct the full cost of qualified property in the year it is placed in service.

The new phase-out schedule

Beginning in 2028, bonus depreciation begins to phase down again:

• 80% for property placed in service in 2028
  
  
• 60% for 2029
  
  
• 40% for 2030
  
  
• 20% for 2031
  
  
• 0% for 2032 and beyond unless extended
  
  

Key takeaway: OBBB creates a three-year planning opportunity, followed by a gradual reduction that ends with full elimination unless future legislation intervenes.

Strategic implications for businesses

• Accelerate purchases: Businesses considering large capital investments should aim to place assets in service before January 1, 2028.
  
  
• Align with growth cycles: Rapidly expanding firms may prefer to front-load purchases to match deductions with taxable income.
  
  
• Section 179 vs. bonus depreciation: Section 179 remains capped ($1.25 million in 2025 with phase-outs), so bonus depreciation is the dominant tool for larger purchases.
  
  
• Phase-out modeling: Companies with long-term capital budgets must factor in the declining percentages starting in 2028.
  
  

Key takeaway: Timing is everything — maximizing placed-in-service dates within 2025–2027 can create significant tax savings.

Worked example

Example
A manufacturing company purchases $2,000,000 of equipment in 2026 and another $2,000,000 in 2028.

• 2026 purchase: Full 100% bonus applies, yielding an immediate $2,000,000 deduction.
  
  
• 2028 purchase: Only 80% ($1,600,000) is deductible immediately, with the balance depreciated over the asset’s normal recovery period.
  
  
• At a 21% corporate rate, the tax savings are $420,000 in 2026 versus $336,000 in 2028.
  
  

Assumptions

• All property qualifies under §168(k).
  
  
• No Section 179 election is made.
  
  
• Taxable income is sufficient to absorb deductions.
  
  

Action steps for business owners

• Map out major capital purchases between 2025–2027 to capture 100% bonus.
  
  
• Review long-term budgets to anticipate reduced deductions after 2027.
  
  
• Track placed-in-service dates precisely, delivery or payment alone does not qualify.
  
  
• Compare scenarios using Section 179 for smaller purchases versus bonus depreciation for larger ones.
  
  
• Build sensitivity models to understand tax cash flow impacts during the 2028–2031 phase-out.
  
  

Structured summary

• OBBB restored 100% bonus depreciation for assets placed in service 2025–2027.
  
  
• Beginning in 2028, bonus depreciation phases down: 80% (2028), 60% (2029), 40% (2030), 20% (2031), and 0% thereafter.
  
  
• Section 179 expensing remains available but limited in scope.
  
  
• Businesses must align asset purchases with the placed-in-service requirement to qualify.
  
  
• The three-year window (2025–2027) offers a critical opportunity to maximize deductions before the decline resumes.
  
  

© 2025 Anomaly CPA. All rights reserved.

‍