Key Takeaways:
- The One Big Beautiful Bill Act restores 100% bonus depreciation for eligible assets placed in service after January 19, 2025, offering private companies’ new options.
- Businesses can elect a 40% deduction for the first year, allowing for tax planning flexibility across interest limitations and income thresholds.
- Accounting method changes, Section 179 expansion, and acquisition timing all play a role in shaping a more effective bonus depreciation strategy.
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The One Big Beautiful Bill Act (OBBBA) brought back 100% bonus depreciation, creating immediate tax benefits for private companies investing in business assets. But simply taking the full deduction may not be the optimal move. Timing matters. Structure matters. And elections made now can affect future tax years.
This article explores the broader planning landscape for bonus depreciation under the new rules — beyond what’s already been covered in MGO’s real estate and manufacturing industry insights.
The Landscape Has Shifted
Property placed in service after January 19, 2025, is eligible for full bonus depreciation if it meets the criteria under Section 168(k). This includes tangible property with a class life of 20 years or less, computer software, and qualified improvement property. Unlike previous versions of the rule, the OBBBA also allows companies to elect a 40% deduction for the first year — providing a lever for income smoothing and broader planning coordination.
For used property, eligibility remains if the property was not previously used by the taxpayer and meets other acquisition criteria.
Planning Around the Acquisition Date
One of the most overlooked elements in bonus depreciation is the acquisition date. While the service date determines when the deduction is claimed, the acquisition date determines whether property falls under the new 100% rule or the phasedown rules still in effect for property acquired earlier.
For businesses that signed contracts or began work prior to January 19, 2025, additional analysis is needed. The IRS has not issued new guidance yet, but regulations issued post-Tax Cuts and Jobs Act (TCJA) still provide a framework:
- The contract date or its enforceability under state law
- When cancellation or contingency clauses expire
- When 10% of total costs are incurred for self-constructed property
Companies should revisit large capital projects now to verify acquisition timing and confirm eligibility.
100% or 40%: Making the Call
Unlike past versions of the law, the OBBBA gives taxpayers an election to take 40% bonus depreciation for one year before moving to the 100% default. This is not a one-size-fits-all decision. Choosing 40% in the first year may help:
- Preserve deductions for interest expense under Section 163(j)
- Spread deductions over multiple years to avoid triggering other income-based limitations
- Maintain eligibility for credits or deductions with income thresholds
This flexibility lets companies better align tax deductions with longer-term financial performance.
Don’t Overlook Section 179
Section 179 remains a vital complement to bonus depreciation, especially for small and midsize companies. The OBBBA increases the annual deduction cap to $2.5 million, and the phaseout threshold to $4 million. Unlike bonus depreciation, Section 179 allows companies to pick specific assets to expense. It can also be used for assets that do not qualify under Section 168(k), such as certain real property improvements.
Used together, Section 179 and bonus depreciation offer layered flexibility that can support broader tax strategies — especially when used with accounting method changes.
Accounting Methods Offer Additional Leverage
Companies evaluating bonus depreciation should also revisit their tax accounting methods. The recovery period for depreciation affects taxable income across multiple years. Depending on current method elections, companies may:
- Accelerate deductions into the current year to manage taxable income
- Defer income recognition to future years
- Use cost segregation studies to reclassify long-life assets into shorter categories
Accounting method changes generally require filing Form 3115, and the timing of these changes’ matters. For automatic changes, a taxpayer must attach the form to its timely filed return. For non-automatic changes, requests must be submitted by the end of the tax year.
Take our self assessment to see if a cost segregation study could work for you
Integrating State Tax Planning
Many states decouple from federal bonus depreciation rules. Even if your federal return reflects 100% expensing, state returns may require slower depreciation schedules. This is particularly relevant for companies operating across multiple jurisdictions.
Real estate investors already face this dynamic, as detailed in MGO’s bonus depreciation for real estate article. But manufacturers, distributors, and tech firms expanding nationally will face similar mismatches. Modeling both state and federal implications is essential.
What’s Next
While bonus depreciation is once again a powerful planning tool, its benefits depend on execution. The added flexibility under the OBBBA increases the need for modeling — not only for depreciation but also for interaction with interest limitations, research deductions, and other income-sensitive provisions. And as outlined in our real estate and manufacturing articles, asset type and business activity can change eligibility and strategic choices.
Bonus Depreciation Support When Needed
MGO works with private companies to identify, model, and implement depreciation strategies aligned with their broader tax positions. Whether you’re structuring new investments, evaluating elections, or reviewing asset schedules, we bring deep understanding of tax code changes and how they play out across industries.
Thoughtful planning today may support stronger positions tomorrow — especially as tax legislation continues to evolve. Reach out to our team today to explore strategies that optimize your depreciation opportunities and strengthen your tax position.