Matt Richardson

CPA | Senior Tax Accountant

As you know, the President signed the One Big Beautiful Bill Act on July 4, 2025. This brought significant changes in the areas of depreciation and related deductions that will impact your taxes in 2025 and beyond.

Below we’ll summarize the most important depreciation changes under OBBBA, including bonus depreciation, Section 179 expensing and a new 100% depreciation election for certain real property.

Note: For a more comprehensive overview of bonus depreciation and section 179, see our previous blog post on the topic here.

Bonus Depreciation: 100% Deduction Restored

Bonus depreciation allows businesses to deduct a large portion or all of the cost of assets in the year they’re purchased.

Key Details:

• Full Deduction Restored – The prior law was set to reduce bonus depreciation to 40% in 2025. OBBA reverses that cut, restoring the 100% deduction for qualifying items purchased from January 20, 2025 and forward.
• Effective Dates – Applies to assets purchased on or after January 20, 2025. Purchases made in the first 19 days of the year must still use the 40% rate under the old law.
• Qualifying Property – Machines, equipment, tools, certain vehicles, and other tangible property requiring capitalization.
• Non-Qualifying Property – Bonus depreciation still does not apply to real property such as buildings and land.
• Permanent Change – The 100% bonus depreciation deduction will not change unless modified by a new law.

Section 179 Deduction: Higher Limit for 2025

The Section 179 deduction allows businesses to immediately expense the full cost of qualifying assets purchased, subject to annual limits.

OBBA Changes:

• Higher Deduction Limit – Starting in 2025, businesses can expense up to $2.5 million (up from $1.22 million in 2024) in property. This limit will be indexed for inflation annually.
• Higher Phase-Out Threshold – Deduction phases out after $4 million in qualifying purchases (up from $3.05 million in 2024) in a tax year. This number will be inflation-adjusted annually.
• No Sunset Provision –  These increases will remain in effect unless modified by future legislation.

New 100% Depreciation Election for Real Property

OBBBA introduces a new 100% deduction for qualifying real property used in production facilities that produce qualified tangible personal property (TPP).

Application of this provision will be complex and IRS guidance will need to be issued. In short, if a taxpayer produces tangible goods and begins building a new manufacturing facility after January 20, 2025, then 100% of the cost of the portion of that facility dedicated to manufacturing can be deducted in the first year.

Key Details:

• Eligible Construction Period –  New construction starting between January 20, 2025 and December 31, 2029.
• Definition of Qualified Personal Property (QPP) – Nonresidential real property used directly in the production of qualified tangible personal property, which includes many tangible goods, excluding food products.
• Deduction Applies Only to Production Areas – Offices, sales facilities and production facilities do not qualify.
• Cost Segregation Study Recommended – To separate production vs. non-production costs for accurate deduction claims.
• Election Required – By default, new facilities will be treated as standard real property unless the taxpayer files a valid election.

Next Steps for Tax Planning

The IRS is expected to issue guidance and clarifications on these provisions, which could take months. While we usually start looking at year-end tax planning in Q4, now is the time to talk with your advisor about the impact of the bill on your specific situation. In particular, you may be able to reduce planned tax payments for the remainder of 2025 given the benefits you’ll see in the bill. At Cray Kaiser we’re here to help you understand how these changes may affect your business and ensure you make the most of these new depreciation opportunities. Contact us here or call us at 630.953.4900.