Business Articles
Bonus Depreciation & Section 179 Expensing Under the OBBB
A Clear, Practical Look at Two Powerful Cost-Recovery Tools
The One Big Beautiful Bill (OBBB) brings back—and expands—two major tax incentives that help businesses recover the cost of capital investments more quickly: 100% Bonus Depreciation and enhanced Section 179 Expensing. Both allow immediate write-offs, stronger early cash flow, and flexibility when planning equipment or property improvements. But they work differently, and timing matters.
Here’s a clear, concise breakdown of each option and how to use them effectively.
Bonus Depreciation: 100% Immediate Expensing Restored
Effective for property acquired and placed in service after January 19, 2025
Bonus depreciation allows businesses to immediately deduct a percentage of the cost of qualifying assets, such as machinery, equipment, or software. Under prior law, the deduction was phasing down from 100% to 0% by 2027.
The OBBB restores and permanently sets bonus depreciation back to 100% for eligible assets acquired and placed in service after January 19, 2025.
What Qualifies
- Most tangible personal property
- Certain vehicles, equipment, machinery, computers, software
- Qualified interior improvements to commercial buildings
- Asset classes with a 20-year life or less (3-, 5-, 7-, 15-year property)
What Doesn’t Qualify
- Land
- Most structural components
- Real property outside of Qualified Improvement Property
Key Rules to Know
- Acquisition date controls. To get 100% bonus depreciation, the purchase contract must be signed on or after January 20, 2025 and the asset must be placed in service afterward. Contracts signed before that date fall back to the old phase-down percentages, even if the asset is placed in service later.
- Older acquisitions follow the phase-down:
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027+: 0%
- Can create or increase a loss. Helpful for active owners of pass-through entities with other income.
- Election is all-or-nothing per asset class for the year.
- State tax impact matters. Many states—including Illinois—decouple from bonus depreciation, requiring full add-backs at the state level.
Section 179 Expensing: Expanded and More Flexible
Effective for property placed in service after December 31, 2024
Section 179 also lets businesses deduct the full cost of qualifying property in the year placed in service, but with annual limits and more granular control.
What Section 179 Covers
- Most tangible personal property
- Certain improvements to nonresidential buildings (roofs, HVAC, fire protection, security systems)
Updated Limits Under the OBBB
- Maximum deduction: $2.5 million (up from $1.25M)
- Phase-out threshold: $4 million (up from $3.13M)
- Both limits are indexed for inflation
- Deduction cannot create a loss—it’s limited to taxable income
- Excess amounts can be carried forward
Why Businesses Use Section 179
- You can pick and choose which assets to expense
- Section 179 is fully allowed in Illinois, while bonus depreciation is not
- Ideal when you want control and predictable tax results year-to-year
However, if your business is in a growth or low-income phase, Section 179 may not offer the full benefit because it cannot reduce taxable income below zero.
Bonus Depreciation vs. Section 179: Which Should You Use?
Bonus Depreciation is best when you want:
- Unlimited first-year expensing
- The ability to create or increase a loss
- Simple rules for large or irregular purchases
- Fast write-offs paired with cost segregation studies (which reclassify building components into bonus-eligible property)
Section 179 works better when you want:
- Control over the deduction, asset by asset
- A tax benefit at both federal and state levels
- To expense real property improvements that bonus depreciation doesn’t cover
- To avoid electing out of an entire asset class
In practice, most businesses will use a mix of Section 179 and Bonus Depreciation depending on the year’s purchases, taxable income, and long-term plans.
Key Planning Insights
- Be deliberate about contract dates
Your acquisition date determines whether you receive 100% bonus depreciation. Before signing purchase agreements for equipment or software, confirm the timing aligns with your tax plan.
- Run state tax projections
Because Illinois disallows bonus depreciation but allows Section 179, your state tax bill may look very different from your federal one. A quick pro-forma comparison can reveal which method creates the best overall savings.
- Buying vs. leasing now matters more
Bonus depreciation and Section 179 apply only to owned property. Leasing avoids upfront costs but forfeits accelerated deductions.
- Consider cost segregation
When paired with restored 100% bonus depreciation, a cost segregation study can significantly increase first-year deductions, especially for rental property and self-rental arrangements.
D+L: Helping You Maximize These Updated Rules
Bonus Depreciation and Section 179 are powerful, but navigating the timing, limits, and state differences can be complex. If you’re planning equipment purchases, software upgrades, or facility improvements for 2025 and beyond, our team can help you understand what’s deductible and how to optimize your tax position under the OBBB.
To learn more, watch the video below where Andrew Schmidt, Principal at Dugan + Lopatka, explains these tax incentives and how to use them to strengthen your tax position. You can also read about the full OBBB on our blog, or contact us anytime with questions.