For businesses, one of the most favorable aspects of the One Big Beautiful Bill Act (OBBBA) is the return of 100% bonus depreciation for property acquired and placed in service after January 19, 2025. This tax incentive allows businesses to immediately deduct the cost of eligible property in the year it is placed in service, rather than depreciating the cost over several years.

The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily provided for 100% bonus depreciation for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. For property placed in service in 2023 and later years, the bonus depreciation percentage is phased down by 20% per year through 2026.

Property eligible for bonus depreciation includes:

  • Property depreciable under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less;
  • Computer software;
  • Water utility property;
  • Qualified film, television, and live theatrical productions; and
  • Qualified Improvement Property (i.e., improvements made by the taxpayer to the interior portion of nonresidential real property).

Most tangible personal property and certain land improvements qualify for bonus depreciation.

To be eligible, the original use of the property must begin with the taxpayer. For property acquired and placed in service after September 27, 2017, used property also may qualify if it was not previously used by the taxpayer or a related party. In addition, the property must be used predominantly within the United States.

The OBBBA makes 100% bonus depreciation permanent for property acquired and placed in service after January 19, 2025. Generally, property is “acquired” on the date a written, binding contract is entered into for its acquisition. Property is “placed in service” when it is available for its intended use.

For property acquired on or before January 19, 2025, the original TCJA phase-down schedule still applies. This is an important distinction. For example, assume a taxpayer acquired a piece of equipment on January 19, 2025, and placed it in service the same day. Under the TCJA phase-down schedule, the bonus depreciation rate for that piece of equipment is 40%. If the same piece of equipment were acquired and placed in service on January 20, 2025, it would be eligible for 100% bonus depreciation, assuming all other requirements are met.

Takeaway

The return of 100% bonus depreciation provides an incentive for businesses to invest in capital assets. If you have questions about the changes to bonus depreciation or other OBBBA topics, contact your Dean Dorton or other professional advisor.