100% Bonus Depreciation Is Back, and This Time It Is Permanent
If you run a business and you have been putting off a big equipment purchase, the tax math just shifted in your favor. For most of the last few years, the deduction known as bonus depreciation was shrinking on a set schedule, and by early 2025 it had dropped to just 40 percent. The 2025 tax law reversed that. Bonus depreciation is back to 100 percent, and for the first time it is permanent, with no phase-out date sitting on the calendar.
Here is what that means, where the traps are, and why writing off the entire purchase this year is not always the smartest move.
What bonus depreciation actually does
When your business buys a long-lasting asset, like a machine, a work truck, or office furniture, the tax code normally makes you deduct the cost a little at a time over several years. That schedule is called depreciation. It spreads the deduction across the years the asset is actually in use, but it also means you wait a long time to feel the full benefit.
Bonus depreciation lets you skip the wait. Instead of deducting a slice of the cost each year, you deduct the whole cost in the year you put the asset into service. Think of it as a coupon for the full purchase price that you get to use immediately, rather than tearing off one small piece of it every year for the next five, seven, or fifteen years.
What changed, and the one date that matters
Under the old rules, bonus depreciation was phasing out: 80 percent in 2023, 60 percent in 2024, and just 40 percent in 2025, headed for zero. The new law scrapped that countdown and reset the rate to a full 100 percent.
The trigger date is January 19, 2025. Qualifying property that you both acquire and place in service after that date is eligible for the 100 percent deduction. Property tied to an earlier purchase date generally falls back under the old phase-down percentages, so timing is not a detail here. It is the whole ballgame.
What qualifies
The eligible categories are broad. In general, bonus depreciation applies to tangible business property with a depreciation life of 20 years or less. That covers machinery, equipment, work vehicles, tools, computers, office furniture, and off-the-shelf software. It also covers qualified improvement property, which is most interior improvements you make to the inside of a nonresidential building you already own.
You maybe surprised to learn that the property does not have to be brand new. Used equipment qualifies too, as long as it is new to you, meaning you or a related party did not previously own it, and you bought it rather than inherited it or received it some other way. For a business that buys quality used machinery, that is a meaningful benefit.
What people often miss
There is a catch in the timing rules. If you signed a written binding contract to buy an asset before January 20, 2025, the tax code generally treats the asset as acquired on that contract date, even if it did not show up at your door until later. That can knock an otherwise eligible purchase out of the 100 percent rate and back into the old phase-down percentages. If you have a large purchase that straddles that window, it is worth confirming exactly which rules apply to it.
Bonus depreciation versus Section 179
Bonus depreciation is not the only way to write off a purchase quickly. Section 179 expensing does something similar, and the 2025 law made it more generous too, raising the annual limit to $2.5 million and the phase-out threshold to $4 million.
The two tools work differently in ways that matter. Section 179 cannot push your business into a loss. Your deduction is capped at your business income for the year. Bonus depreciation has no dollar limit and can create or deepen a loss, which can then offset other income. In practice the two are often used together, with Section 179 applied first to the assets you choose, and bonus depreciation handling the rest. Which combination is best is a planning question, not a default.
What the write-off looks like in real numbers
Say your business buys $120,000 of qualifying equipment and places it in service this year. With 100 percent bonus depreciation, you deduct the full $120,000 right now instead of spreading it across seven years. If that income would otherwise be taxed at a combined marginal rate of roughly 32 percent, that single deduction lowers your tax bill by around $38,000 in the same year you made the purchase. The cash you keep can go straight back into the business.
It is worth being clear about what this is and what it is not. Bonus depreciation does not hand you a permanent extra deduction. You were always going to deduct that $120,000 eventually. What it does is pull the entire deduction into year one, which is a timing advantage and a cash-flow advantage, not free money. And when you later sell the asset, some of that deduction can come back as taxable income through what is called depreciation recapture. That is not a reason to avoid it. It is a reason to use it on purpose rather than on autopilot.
Real estate owners: this is where cost segregation comes in
If you own real estate, bonus depreciation might sound like it does not apply to you, since a building itself is depreciated over decades. This is where a cost segregation study earns its keep. A cost segregation study breaks a building down into its component parts, and many of those parts, things like flooring, fixtures, cabinetry, certain electrical and plumbing, and land improvements such as driveways and landscaping, carry much shorter depreciation lives that do qualify for bonus depreciation.
For owners of short-term rentals in particular, pairing a cost segregation study with 100 percent bonus depreciation can produce a sizable first-year deduction. The catch is that the rules governing whether you can use that deduction against your other income are strict, especially the material participation requirements. This is an area to plan deliberately rather than assume, because the size of the benefit depends entirely on getting those details right.
A new write-off for production buildings
The law also created a brand-new, temporary write-off for certain production buildings. If you construct a facility used directly for manufacturing, refining, or producing physical goods, you may be able to deduct 100 percent of the cost of the production space in the first year, rather than depreciating it over 39 years.
The deadlines here are specific. Construction generally must begin before 2029 and the building must be placed in service before 2031. Only the production space qualifies, not the offices, labs, or sales areas, and a 10-year recapture rule applies if the use of the building changes. For any manufacturer weighing a new plant, this is a substantial incentive that deserves careful modeling early in the process.
Why deducting everything now is not always the right call
Taking the full deduction this year is not automatically the best choice. If you expect to be in a noticeably higher tax bracket in future years, a deduction is worth more later than it is today. In that case it can make sense to elect a smaller bonus percentage, or to skip bonus depreciation for a class of assets and depreciate them normally instead. The law specifically allows those elections.
This is exactly the kind of question we model before you file.
A few things to confirm before you buy
A handful of items are worth checking so there are no surprises later. State conformity is the big one: Kansas and Missouri do not always follow the federal rules in lockstep, and state treatment of bonus depreciation can differ from the federal deduction, so it is worth confirming for your specific return. Beyond that, large deductions can interact with the business interest limitation and with your qualified business income deduction, vehicles carry their own annual caps depending on weight and use, and the recapture rules apply when you eventually sell. None of these are reasons to hold back. They are simply the details that turn a good deduction into a well-planned one.