What Changed for 2025 Bonus Depreciation Under OBBBA?
The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) permanently restored 100% first-year bonus depreciation for eligible property acquired and placed in service after January 19, 2025. Before OBBBA, the Tax Cuts and Jobs Act phasedown had reduced the bonus rate to 40% for property placed in service in 2025, with the rate dropping to 20% in 2026 and zero in 2027. OBBBA eliminated the phasedown entirely and set the rate at 100% permanently. For practitioners who prepare returns involving capital equipment, vehicles, or other depreciable assets, this is the single largest cost recovery change since the original TCJA enactment.
The TCJA Phasedown That OBBBA Reversed
The Tax Cuts and Jobs Act of 2017 set 100% first-year bonus depreciation for qualified property placed in service after September 27, 2017 and before January 1, 2023. After that, IRC 168(k)(6) imposed a phasedown schedule:
| Tax Year | Bonus Rate | Status |
|---|---|---|
| 2018 to 2022 | 100% | TCJA original |
| 2023 | 80% | Phasedown began |
| 2024 | 60% | Continued decline |
| 2025 (pre-OBBBA) | 40% | Would have applied |
| 2026 (pre-OBBBA) | 20% | Would have applied |
| 2027+ (pre-OBBBA) | 0% | Full sunset |
| 2025+ (post-OBBBA) | 100% permanent | OBBBA restored |
The phasedown created a planning headache. Clients who needed equipment asked whether to buy in 2024 at 60% or wait for potential legislation. Some clients delayed purchases, betting that Congress would act. Others accelerated purchases into 2022 to get the full 100% rate before it started dropping.
That calculation no longer matters. OBBBA set the rate at 100% permanently. There is no scheduled reduction, no sunset, and no need to time purchases around a declining rate.
What OBBBA Actually Changed
OBBBA restored 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025. Both conditions matter: the property must be acquired after that date, and it must be placed in service (actually put to use in the business) to claim the deduction. January 19, 2025 is the effective date specified in the legislation for this provision, not the date the bill was signed into law (July 4, 2025). Property placed in service between January 1 and January 19, 2025 remains subject to the 40% rate under the pre-OBBBA phasedown.
OBBBA also created a separate provision under Section 70307 for "qualified production property." This is a new elective 100% depreciation deduction for qualifying domestic production assets placed in service after July 4, 2025. It operates independently from the IRC 168(k) bonus depreciation restoration.
The key distinction: the 168(k) restoration applies to all eligible property acquired and placed in service after January 19, 2025. The Section 70307 production property provision has a later effective date and a narrower definition of eligible assets.
Eligible Property Under IRC 168(k)
Bonus depreciation applies to qualified property, which includes:
- New or used tangible personal property with a MACRS recovery period of 20 years or less (equipment, furniture, vehicles, machinery)
- Qualified computer software
- Water utility property
- Qualified improvement property (interior improvements to nonresidential real property)
- Specified plants (fruit-bearing trees and vines, with an election to apply bonus depreciation in the year of planting)
Used property qualifies if the taxpayer had not previously used the property and the property was not acquired from a related party under IRC 179(d)(2). This expansion to used property was part of the original TCJA and carries forward under OBBBA.
Property must be placed in service in a taxable year beginning after December 31, 2017. There is no dollar limit on bonus depreciation, unlike Section 179 which caps expensing at $2,500,000 for taxable years beginning in 2025. OBBBA doubled the prior Section 179 limit from $1,250,000 and raised the investment ceiling from $2,500,000 to $4,000,000 per Rev. Proc. 2025-32.
State Conformity Is Where It Gets Complicated
Not every state follows the federal bonus depreciation rules. Whether your client gets 100% bonus depreciation on their state return depends on the state's conformity model.
Rolling conformity states (New York, Colorado, Illinois, and others) automatically adopted OBBBA's changes. Federal and state depreciation schedules match. No separate calculation needed.
Static conformity states did not. California conforms to the IRC as of January 1, 2015, which predates both TCJA and OBBBA. California clients need a separate state depreciation schedule for every asset that takes federal bonus depreciation. The state may require use of the Alternative Depreciation System or its own modified recovery periods.
Selective conformity states present the most complex scenario. Maine, for example, has historically decoupled from federal bonus depreciation. Maine's Office of Tax Policy published detailed analysis recommending against conforming to OBBBA's bonus depreciation restoration, estimating a $102.8 million revenue impact in the first year alone. Even if Maine generally conforms to the IRC, this specific provision may not carry over.
The state conformity pillar post covers the three conformity models in detail, with state-by-state groupings.
For a multi-state client, one equipment purchase can require three or more depreciation calculations: one for federal, one for each state that decouples from the federal rate. The compliance burden scales with the number of states involved.
Planning Around the January 19 Effective Date
The January 19, 2025 effective date creates a narrow window that practitioners need to manage carefully.
Property acquired January 1 through 19, 2025: Subject to the 40% TCJA rate. Clients who placed assets in service during this period cannot retroactively apply 100% depreciation. They may want to evaluate whether a Section 179 election provides a better result, subject to the $2,500,000 OBBBA limit (the pre-OBBBA $1,250,000 limit applied to property placed in service before the effective date).
Property acquired and placed in service after January 19, 2025: Eligible for 100% bonus depreciation with no dollar cap. This applies regardless of when the taxpayer files the return. Property acquired after January 19 but not yet placed in service does not qualify until it is actually put to use.
Property from 2023 and 2024: Already depreciated at 80% (2023) or 60% (2024). OBBBA did not retroactively change the depreciation rate for property placed in service before 2025. The remaining basis continues to depreciate under the normal MACRS schedule.
Extension filers: Clients who filed for extensions and have not yet filed their 2025 returns can apply the 100% rate directly. No amendment necessary.
Early filers with 2025 property: Clients who already filed 2025 returns using the 40% rate on property acquired after January 19 may want to file amended returns to claim the full 100%. The difference between 40% and 100% on a $500,000 equipment purchase is $300,000 in additional first-year deductions.
Interaction with Section 179 and the QBI Deduction
Bonus depreciation and Section 179 both provide first-year cost recovery, but they operate differently. Section 179 has a dollar limit ($2,500,000 for 2025, doubled by OBBBA from the prior $1,250,000). The Section 179 deduction begins to phase out when total property placed in service exceeds $4,000,000. Bonus depreciation has no dollar limit and no phase-out. Section 179 is elective; the taxpayer can choose how much to expense. Bonus depreciation is automatic unless the taxpayer elects out.
For pass-through entity owners, both provisions reduce QBI. A sole proprietor who takes $1 million in bonus depreciation on equipment reduces their Schedule C income by $1 million, which directly reduces the QBI available for the Section 199A deduction. In some cases, the 20% QBI deduction is worth more per dollar than the immediate depreciation deduction, depending on the taxpayer's marginal rate and whether the W-2/UBIA limitation applies.
This interaction means cost recovery planning for pass-through owners is not just about "take the biggest deduction now." It requires modeling the 199A impact alongside the depreciation deduction to find the combination that produces the lowest total tax.
The Bottom Line
OBBBA permanently restored 100% bonus depreciation. No more phasedown, no more sunset, no more timing purchases around a declining rate. The 100% rate applies to eligible property acquired and placed in service after January 19, 2025.
For solo practitioners advising small business clients on equipment purchases, the message is straightforward: buy when the business needs the asset, not when the depreciation schedule dictates. The cost recovery benefit is the same whether the client buys in May or December.
The compliance complexity shifts to state conformity. If your client operates in a rolling conformity state, one depreciation schedule handles both returns. If the client is in a static or selective conformity state, you need separate calculations. Tax Orator indexes state conformity guidance, DOR publications, and legislative analysis documents so you can check whether a specific state follows the federal rules instead of guessing. The Solo Practitioner plan covers 200 queries per month, enough for practices with regular multi-state depreciation questions.