NEWS
Businesses planning major equipment and technology purchases in 2025 can once again deduct the full cost upfront after Congress restored 100% bonus depreciation under a new federal tax law. The change applies to qualifying property acquired and placed in service after Jan. 19, 2025, reversing a scheduled phaseout and providing businesses with more explicit guidance as they make capital investment and tax planning decisions.
Bonus depreciation allows businesses to deduct the cost of certain asset purchases immediately rather than spreading deductions over multiple years. Under the restored rule, qualifying property placed in service after the January cutoff is eligible for a full first-year deduction.
This marks a clear shift from prior law. Without congressional action, the deduction percentage was scheduled to continue declining during the 2025 tax year before phasing out entirely.
Qualified property generally includes depreciable property with a recovery period of 20 years or less under the Modified Accelerated Cost Recovery System. Common examples include manufacturing equipment, machinery, furniture, certain vehicles, and computer software used in a trade or business.
A used property may also qualify if it meets the acquisition requirements. The asset must be new to the taxpayer, cannot be acquired from a related party, and must not have a cost basis determined by reference to another owner. Buildings and most real estate investments remain excluded.
To claim the full deduction, property must be both acquired and placed in service after Jan. 19, 2025. Placed in service means the asset is ready and available for its intended use, not merely purchased or delivered.
The Internal Revenue Service has emphasized that documentation supporting service dates is critical. Assets placed in service earlier may still qualify for reduced bonus depreciation percentages depending on timing.
Bonus depreciation was expanded to full expensing under the Tax Cuts and Jobs Act, but that law included an automatic phaseout designed to limit long-term revenue impacts. By 2023, the deduction percentage had already begun to decline.
Businesses had been preparing for further reductions when lawmakers reversed course. The new tax bill halted the phaseout and restored full expensing for qualifying property.
Under the original schedule, bonus depreciation declined incrementally after reaching 100%. Each year brought a lower allowable percentage, reducing the immediate tax benefit for asset purchases.
Tax policy analysts noted that the declining percentages weakened incentives for capital investments, particularly for businesses sensitive to short-term cash flow.
The One Big Beautiful Bill removed the remaining phaseout provisions and made complete expensing permanent under current law. According to Congress.gov, lawmakers stated that permanence would enable businesses to plan capital investments without uncertainty over future depreciation rates.
The Joint Committee on Taxation estimated that restoring full expensing would shift federal revenue costs into earlier years, while supporters argued the timing change would encourage investment activity.
The primary benefit of full expensing is timing. Businesses reduce taxable income in the year an asset is placed in service, which can lower immediate tax liabilities during periods of heavy spending.
Over the asset's life, the total deduction remains unchanged. However, accelerating deductions can improve short-term cash flow and liquidity when companies are expanding or upgrading equipment.
For businesses making large asset purchases, the deduction can free up capital that would otherwise be used to pay taxes. That capital may be reinvested into operations, hiring, or additional asset purchases.
Tax advisors caution that accelerated deductions may also affect future taxable income, particularly for businesses with uneven earnings from year to year.
Traditional depreciation spreads deductions over a fixed depreciation schedule. Straight-line depreciation allocates equal deductions annually, while other methods allow larger deductions earlier.
Bonus depreciation allows for a full deduction in the first year. While both approaches ultimately deduct the exact cost of the property, the timing difference can influence return on investment calculations.
The restored deduction is expected to have the most significant impact on businesses that rely heavily on equipment and machinery. Smaller firms may also benefit, particularly those facing higher upfront costs when scaling operations.
The provision applies broadly, but the value of the deduction depends on income levels, tax liabilities, and overall tax planning strategies.
Manufacturers, logistics firms, and other equipment-intensive industries frequently purchase MACRS property that qualifies for full expensing. Analysts say the change could accelerate the modernization of aging equipment across the U.S. economy.
Industry groups have long argued that faster write-offs reduce barriers to upgrading production capacity.
For smaller businesses, deducting large purchases upfront can ease pressure on cash flow during expansion. Business owners investing in growth may find the timing benefit especially valuable.
Tax professionals note that the deduction interacts with other provisions, making individualized analysis important.
Federal agencies have begun updating guidance to reflect the new law, while policy organizations continue to debate its long-term fiscal impact.
“Taxpayers should carefully review eligibility and timing requirements before claiming the deduction,” the Internal Revenue Service said in updated guidance.
Analysts at the Penn Wharton Budget Model estimate that permanent full expensing could modestly increase investment and output. Critics argue that the provision will lead to increased federal revenue losses over time.
The debate is expected to continue as lawmakers assess broader legislative developments affecting the tax code.
Despite the restored deduction, bonus depreciation is not automatically beneficial in every situation. Businesses should assess how accelerated deductions align with their broader financial and tax planning objectives.
Timing, documentation, and coordination with other provisions remain critical.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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