Bonus Depreciation Explained

What is Bonus Depreciation? How did the OBBBA expand it? How can it help me?

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Here’s how bonus depreciation was restored and expanded under the One Big Beautiful Bill Act (OBBBA):

Restoration of 100% Bonus Depreciation

Previous Declining Schedule: Without the Bill, the bonus depreciation rates would have been 40% in 2025, 20% in 2026, and 0% in 2027 and beyond. The OBBBA reversed this phase-out.

Permanent Restoration: Permanently restores 100% expensing (also known as bonus depreciation) for qualified property acquired and placed in service after January 19, 2025.

What Qualifies for Traditional Bonus Depreciation

Qualified Property: In general, “qualified property” is tangible personal property with a recovery period of 20 years or less, and also certain qualified improvement property for real estate purposes.

NEW: Expanded Bonus Depreciation for Manufacturing

Qualified Production Property: The OBBBA created an entirely new category of property eligible for 100% bonus depreciation:

The Bill also allows new 100% bonus depreciation for “qualified production property” the construction of which begins after Dec. 31, 2024 and which is placed in service before Jan. 1, 2034.

Definition of Qualified Production Property: “Qualified production property” generally means nonresidential real property (1) that is used by the taxpayer as an integral part of a “qualified production activity,” (2) that is placed in service by the taxpayer.

Manufacturing Focus: Allows for the immediate, 100% expensing in the year placed in service for certain domestic facilities used to produce tangible personal property. To qualify, construction must begin after January 19, 2025, and before 2029, and the facility generally must be placed in service before 2031.

Key Timelines

Traditional Qualified Property: - Effective for property acquired and placed in service after January 19, 2025 - Made permanent (no expiration)

New Qualified Production Property: - Construction must begin after December 31, 2024 (or January 19, 2025) - Construction must begin before 2029 - Property must be placed in service before 2031-2034 (depending on source)

Business Impact

This expansion represents a significant incentive for domestic manufacturing and production facilities, allowing businesses to immediately deduct the full cost of both traditional equipment AND new manufacturing real estate, rather than depreciating these assets over many years.

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