Welcome to the third installment in TRP Sumner PLLC’s series of articles exploring key components of the One Big Beautiful Bill (OBBB), enacted in 2025. Our goal is to provide clear, practical insights into provisions of this significant tax legislation that impact our clients, particularly small business owners. In this article, we examine the reinstatement and expansion of 100% bonus depreciation, a powerful incentive designed to encourage business investment.

Executive Summary:

100% Bonus Depreciation: Boosting Small Business Investments

Bonus depreciation has long been a valuable tool for businesses looking to invest in new equipment, machinery, and other assets. The One Big Beautiful Bill (Public Law 119-21), signed in 2025, restored 100% bonus depreciation for qualified property acquired after January 19, 2025, effectively reversing the phase-down schedule that began in 2023. It also expands accelerated treatment to certain manufacturing and production facilities. Together, these provisions offer small business owners significant opportunities to reduce taxable income while upgrading or expanding their operations.

What is Bonus Depreciation?

Bonus depreciation allows businesses to immediately deduct a percentage of the cost of qualifying assets in the year they are placed in service, rather than depreciating the cost over several years under standard depreciation schedules (e.g., MACRS). Originally introduced as a temporary measure to stimulate economic growth, bonus depreciation has undergone several changes in rate and scope over the years.The Tax Cuts and Jobs Act of 2017 allowed 100% bonus depreciation for qualified property placed in service from September 27, 2017, through December 31, 2022, after which it began phasing down (80% in 2023, 60% in 2024, and so forth). The OBBB restores 100% bonus depreciation for property acquired and placed in service after January 19, 2025, and broadens eligibility to include certain manufacturing and production facilities.

Details of the Reinstatement and Expansion

Under the OBBB, 100% bonus depreciation applies to:

Qualified Property: Tangible property with a recovery period of 20 years or less under MACRS, such as machinery, equipment, furniture, and certain improvements to nonresidential real property. Bonus depreciation may apply to new or used property, provided it meets statutory acquisition and predecessor rules (generally, it must not have been used by the taxpayer or a predecessor, and related-party restrictions apply).

Manufacturing / Production Facilities: For the first time, the OBBB extends accelerated first-year treatment to certain facilities used primarily for manufacturing, processing, or assembling goods. This includes newly constructed or acquired production facilities that meet specific criteria (e.g., at least 50% of the building’s use is for qualified production activity). The rules are elective and subject to detailed requirements.

Timing: Full 100% bonus depreciation generally applies to property acquired and placed in service after January 19, 2025. Transitional rules apply to assets under binding contracts before that date, and elections are available for tax years straddling January 19.To qualify, property must meet these acquisition and use rules, and it must be used in a trade or business. Unlike some tax provisions, bonus depreciation is not subject to income-based phase-outs, making it broadly accessible to businesses of varying sizes.

Benefits for Small Business Owners

The reinstatement and expansion of 100% bonus depreciation offer several advantages for small businesses:

Immediate Tax Savings: By deducting the full cost of qualifying assets in the year they are placed in service, businesses can significantly reduce taxable income. For example, a small manufacturer purchasing $100,000 in new equipment could deduct the entire amount in 2025, potentially saving thousands in federal taxes (depending on the business’s tax rate).

Cash Flow Improvement: The upfront deduction frees up cash that can be reinvested into the business, whether for additional equipment, hiring, or other growth initiatives.

Incentive for Investment: The 100% deduction encourages businesses to upgrade outdated equipment, modernize facilities, or expand operations, fostering innovation and competitiveness.

Expanded Scope for Manufacturers: Including certain production facilities in the provision is a game-changer for industries that rely on specialized buildings. For qualifying projects, the OBBB permits accelerated first-year treatment, a departure from the standard 39-year recovery period.

Key Considerations

While 100% bonus depreciation is a powerful tool, there are important factors to keep in mind:

Eligibility Requirements: Not all property qualifies. Land and intangibles (e.g., patents or goodwill) are excluded. Production facilities must meet strict use and timing criteria, so documentation is essential.

Interaction with Section 179: Section 179 expensing remains available, but its mechanics differ. Under the OBBB, the Section 179 dollar limit was increased to approximately $2.5 million (subject to indexing and a higher phase-out threshold). Because Section 179 has caps and phase-outs while bonus depreciation does not, businesses should compare the two approaches.

State Tax Conformity: Some states do not fully conform to federal bonus depreciation rules, which may limit the deduction’s benefit on state tax returns.

Strategic Timing: Since the provision applies to property acquired and placed in service after January 19, 2025, businesses planning major purchases should carefully coordinate acquisition and use dates.

Planning Opportunities

To maximize the benefits of 100% bonus depreciation, consider the following:

Evaluate Investment Needs: Review your business’s equipment and facility needs to identify opportunities for upgrades or expansion that align with the 2025 start date.

Consult a Tax Professional: The rules, especially for production facilities, are complex. A tax advisor can help confirm eligibility, optimize deductions, and coordinate with other tax strategies, such as the Qualified Business Income (QBI) deduction discussed in our first article.

Maintain Accurate Records: Document the acquisition date, placed-in-service date, and use of qualifying property to substantiate deductions in case of an IRS review.

At TRP Sumner PLLC, we’re here to help you leverage the reinstated 100% bonus depreciation to support your business’s growth. If you’re considering investments in equipment or production facilities, contact our team to discuss how this provision can enhance your tax strategy. Stay tuned for the next article in our OBBB series, where we’ll explore another key component of this legislation.