Many provisions of the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, are aimed at incentivizing investments in U.S. manufacturing. That includes new and enhanced tax codes regarding depreciation expensing.
The OBBBA permanently restores 100% bonus depreciation for qualified assets, introduces a new 100% depreciation deduction for investments in qualified production property (QPP), and enhances the Section 179 expense allowance.
Keep reading to learn about these changes and what they mean for taxpayers and businesses.
Please note: Comprehensive IRS guidance on many OBBBA provisions is still forthcoming. For the most current information, consult your tax advisor.
Section 168(k): Bonus Depreciation
Under OBBBA, 100% first-year bonus depreciation is permanently reinstated for qualifying tangible assets (e.g. machinery and equipment) that are placed in service after Jan. 19, 2025. For assets placed in service before Jan. 20, 2025, 40% bonus depreciation is still in effect. Previously, there were scheduled phaseouts, but now the full cost may be written off in the first year.
The bonus depreciation continues to apply to both new and used qualified property, as long as it’s new to the taxpayer. Taxpayers may continue to opt out of all bonus depreciation on a class-by-class basis, and there is an election to continue to utilize 40% bonus depreciation for the first taxable year ending before Jan. 1, 2026. It’s unclear based on current guidance if that election will apply to all qualified property, or if it will be a class-by-class election like the standard bonus-depreciation opt-out election.
Reducing taxable income in the first year can help improve cash flow and could provide an incentive for businesses to make more investments in large expenses like new machinery or equipment upgrades. By making this provision permanent, tax planning will be simpler and more predictable because taxpayers don’t need to plan for future sunsets.
Section 168(n): Bonus Depreciation for Qualified Production Property (QPP)
This new elective 100% bonus depreciation allowance applies to certain non-residential property, also known as qualified production property (QPP). This means the full qualifying cost can be written off in the year the property is placed in service vs. depreciated over many years (typically 39 years under straight-line depreciation).
The reduction in taxable income can help businesses improve cash flow and lower tax liability in the short-term. But ultimately, taxpayers can choose whether to take the 100% deduction or depreciate over time, depending on their overall tax and financial strategy.
It’s important to note that there is also a recapture rule. If a property stops being used in a qualified production activity within 10 years of being placed in service, it may be considered “sold” and therefore subject to depreciation recapture.
What qualifies as QPP?
To be eligible under 168(n), a qualified production property must be:
- Non-residential real property, like a factory or manufacturing plant. Residential property and typical office buildings used for non-production activities are not eligible.
- Used by the taxpayer as an integral part of a “qualified production activity,” such as manufacturing or agricultural production.
- Placed in service before Jan. 31, 2031, and construction on the property must begin between Jan. 19, 2025, and Jan. 1, 2029.
The property also cannot be required to use the alternative depreciation system (ADS), meaning it must be based on the United States (foreign property does not qualify).
Section 179: Expensing Deduction Enhancement
The OBBBA increases the annual Section 179 deduction from $1 million to $2.5 million with a $4 million phaseout threshold (up from $2.5 million). These changes apply to property placed in service after Dec. 31, 2024. The deduction and phaseouts are indexed for inflation each year.
This yearly expensing election also can be used to claim deductions for property that isn’t eligible for bonus depreciation, and can be used in combination with bonus depreciation for qualifying assets.
Understanding these changes and how they could impact both short- and long-term tax and financial planning is crucial. Reach out to your Mowery & Schoenfeld tax advisor today to discuss how you can make these regulations work best for you. Contact us
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