Big Beautiful Breakdown: Bonus Depreciation Benefits for Business Owners

President Trump signed the “One Big Beautiful Bill Act” (OBBBA) into law on July 4. Among its sweeping changes, the bill delivers powerful bonus depreciation incentives—potential game-changers for business owners. Here’s are some of the key tax rules to understand when it comes to bonus depreciation

Bonus Depreciation Returns—Permanently

Under the OBBBA, 100% bonus depreciation is fully and permanently restored for new qualifying business property placed in service after January 19, 2025. Without this law, bonus depreciation would have sharply dropped—to 40% in 2025, 20% in 2026, and zero in 2027.

What Qualifies for Bonus Depreciation?

Qualified property includes tangible assets with a recovery period of 20 years or less—machinery, equipment, office furniture, vehicles—and even qualified improvement property, like building renovations. New in the bill is the expansion to qualified production property, including certain nonresidential real estate used in U.S. manufacturing and production. Construction must begin after December 31, 2024, and the asset must be placed in service by 2034 to qualify.

What It Means for Your Business

• Maximize cash flow: Deducting 100% upfront effectively reduces taxable income in the year of acquisition—an immediate boost to cash flow.
• Faster ROI: Investments in equipment, technology and facilities become more financially compelling when the full cost is deductible immediately, reducing the true after-tax cost.
• Strategic planning unlocked: Permanent bonus depreciation removes the “use-it-or-lose-it” pressure tied to the TCJA’s scheduled phase-down, giving businesses breathing room to time big purchases.

Election Required

Eligible taxpayers must elect to claim bonus depreciation under Section 168(k). Although the default is 100%, filing the election ensures bonus depreciation is properly applied.

Watch for Limitations

• Net Operating Loss (NOL) traps: Accelerating deductions may generate NOLs that can be carried forward, but corporate taxpayers should model carefully to manage usage limits.
• Tax strategy required: Businesses should analyze whether electing (or avoiding) bonus depreciation in a given year aligns with longer-term tax planning, especially if profits fluctuate.

Key Takeaways

For business owners, the OBBBA’s generous depreciation regime signals a strong incentive to invest now. Whether you’re acquiring equipment or expanding a production facility, the ability to write off the full cost immediately can significantly enhance ROI, reduce tax liability and free up cash for growth.

At Illumination Wealth, we’re closely monitoring IRS guidance to help business clients optimize their capital expenditures under the new law. If you’re planning a major purchase in 2025 or beyond, bonus depreciation should be a central part of your strategy. Contact us today to assist with your business and tax planning needs.