Bonus Depreciation Under The One Big Beautiful Bill

On July 4, 2025, President Trump signed the One Big Beautiful Bill into law. The legislation makes far-reaching changes to the federal tax code and other parts of the government. The bill cuts certain taxes, changes funding for a number of federal programs, raises the debt ceiling by $5 trillion, and extends many of the provisions originally introduced in the 2017 Tax Cuts and Jobs Act (TCJA).

Bonus Depreciation Prior to The One Big Beautiful Bill

Prior to passage of The One Big Beautiful Bill bonus depreciation was being phased out. Assets placed in service in 2025 were to receive 20% bonus depreciation with no bonus depreciation for following years.

Effect of The One Big Beautiful Bill

Bonus depreciation is now at 100% and the bonus provisions are permanent. However, the new provisions do not apply to property that was acquired before January 20, 2025 or that was purchased subject to a written binding contract entered into before January 20, 2025.

Businesses can elect to take depreciation for 2025 under the old depreciation rules. Taxpayers can also elect out of bonus depreciation by class life of the property.

Qualified Production Property

There is now a new category of real property eligible for bonus depreciation but with special rules. Real property that is an integral part of a qualified production activity can qualify for bonus depreciation if construction begins after January 19,2025 and is placed in service before January 1, 2031.The bonus depreciation also applies to used property or property converted to use in qualified production activities. Any portion of the property that is used for office space, administrative services, lodging, parking, sales activities, research activities, software engineering activities or other activities unrelated to manufacturing does not qualify. Production of food or beverages prepared in the same building as a retail establishment in which such property is sold does not qualify. Leased assets do not qualify for the bonus treatment.

If a taxpayer elects the bonus depreciation on any qualified production property, that property is then treated as personal property for depreciation recapture purposes. That means that on a sale of the property, the gain will be ordinary income rather than capital gain to the extent of the depreciation. In addition, if the property is no longer used in the production activity within 10 years of being placed in service, the depreciation is recaptured as if the building is sold.

Example 1: Bob purchases a new building on July 1, 2025 for $10 million. He sets up a production line in the building that uses 80% of the building space. Bob can elect bonus depreciation for $8 million for 2025.

Example 2: in 2028, Bob moves production to a larger facility and converts the building to all office space. Bob must recognize $8 million of ordinary income in 2028 for ceasing to use the assets for production within 10 years.

Planning Around Bonus Depreciation

Businesses sometimes have a year where they place in service a new facility or do a major renovation of a facility. The bonus depreciation can sometimes bunch too much depreciation into one year so that much of the tax benefit of the depreciation is at lower tax rates. We often work with clients to make the bonus depreciation elections and section 179 deduction elections in a way that maximizes the tax benefit of the depreciation. Our clients can often save significant tax dollars by planning to optimize the timing of the tax depreciation deductions.

Contact Us 

With major changes to tax rules, both individuals and business owners are encouraged to revisit tax strategies. A proactive approach will be essential to capture benefits, manage risk, and stay compliant as the new provisions take effect. If you have questions about the information outlined above, or need assistance with another tax issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.