New Law Restores Full Bonus Depreciation and Expands Expensing Opportunities for Small Businesses

A new tax law brings welcome news for small business owners, offering major improvements to depreciation rules. Among the highlights are the return of 100% bonus depreciation and expanded Section 179 expensing limits.

Here’s what business taxpayers need to know.

100% Bonus Depreciation Returns

 Businesses can once again claim 100% first-year bonus depreciation for eligible assets acquired and placed in service after January 19, 2025.

This change permanently restores the full deduction, which had been gradually phased down in recent years — from 100% in 2022 to 80% in 2023, 60% in 2024, and 40% for most property placed in service before January 19, 2025.

Eligible property includes most depreciable business assets such as:

• Equipment and machinery

• Computer hardware and software

• Certain vehicles

• Qualified improvement property (QIP) — interior improvements to nonresidential buildings made after they were first placed in service

Keep in mind, improvements related to building expansions, elevators or escalators, and internal structural changes don’t qualify as QIP. Those expenditures must still be depreciated over 39 years.

Expanded Section 179 Expensing

For assets placed in service during tax years beginning in 2025, the Section 179 deduction limit doubles to $2.5 million, with a phase-out threshold of $4 million in qualifying purchases.

(Before the law change, those amounts were $1.25 million and $3.13 million, respectively.)

Beginning in 2026, both limits will be adjusted annually for inflation.

Eligible Section 179 assets generally mirror those eligible for bonus depreciation. In addition, Section 179 expensing can apply to:

• Qualified improvement property

• Roofs, HVAC systems, fire protection and alarm systems, and security systems in nonresidential buildings

• Certain depreciable personal property used primarily in lodging operations

There's also a special limitation for heavy SUVs (gross vehicle weight between 6,001 and 14,000 pounds) used more than 50% for business. For 2025, the maximum Section 179 deduction for such vehicles is $31,300.

*** Planning Tip: Section 179 deductions are subject to several restrictions - especially for partnerships, LLCs, and S corporations - that don't apply to bonus depreciation. Often, it's more efficient to take 100% bonus depreciation first when possible.

New 100% Depreciation for Production Property

The law also introduces a valuable new incentive: 100% first-year depreciation for qualified production property (QPP). This allows immediate expensing of certain nonresidential real estate used directly in manufacturing, refining, or producing tangible goods.

QPP must:

• Begin construction after January 19, 2025, and before 2029

• Be placed in service in the U.S. or a U.S. possession before 2031

However, areas used for offices, sales, research, software development, or other administrative functions do not qualify.

Time to Revisit Your Depreciation Strategy

These updates offer significant opportunities for small businesses to reduce taxable income and boost cash flow in 2025 and future years. If you plan to acquire new equipment, vehicles, or property improvements, now is the time to review your depreciation strategy.

Our team can help you evaluate the new rules, identify eligible assets, and ensure you maximize available deductions under the latest law.