New Tax Benefits for Small Businesses Under the One Big Beautiful Bill Act (OBBBA)

The One Big Beautiful Bill Act (OBBBA) offers tax benefits for small businesses, including improved depreciation rules that speed up asset cost recovery. Here are key points for business owners.

100% Bonus Depreciation Returns

Under the OBBBA, 100% first-year bonus depreciation is permanently reinstated for qualifying assets acquired and placed in service after January 19, 2025. This change restores the provisions that were in place in 2022.

Previously, the deduction was reduced to:

For some assets with extended production periods, the reductions were postponed by one year. For instance, property placed in service within the same timeframe in 2025 is eligible for a 60% bonus depreciation rate.

Eligible property includes most depreciable tangible personal property like:

• Machinery and equipment

• Computer hardware and software

• Certain vehicles

• Real estate qualified improvement property (QIP), which refers to interior improvements to non-residential buildings made after the buildings were placed in service

However, improvements related to building enlargements, elevators, escalators, or internal structural frameworks do not qualify as QIP and must typically be depreciated over 39 years.

Enhanced Section 179 Expensing

Starting in 2025, the OBBBA doubles the Section 179 expensing limit to $2.5 million from $1.25 million. The phase-out threshold increases to $4 million, up from $3.13 million, with both amounts to be adjusted annually for inflation starting in 2026.

Section 179 applies to many of the same types of property as bonus depreciation, including:

** Note: For heavy SUVs (gross vehicle weight 6,001–14,000 lbs.), the 2025 maximum Sec. 179 deduction is $31,300.

Section 179 deductions have specific limitations, particularly for pass-through entities such as partnerships and S corporations. In certain situations, claiming 100% bonus depreciation (when available) is an alternative option to using Section 179.

Special Depreciation for Qualified Production Property

The new law provides a 100% first-year depreciation deduction for Qualified Production Property (QPP), which refers to non-residential buildings used directly in specified production activities, such as:

QPP excludes buildings (or parts of buildings) used for offices, lodging, parking, research, sales, software development, or other non-production functions.

To qualify, construction must begin after January 19, 2025, and before 2029, and the property must be placed in service in the U.S. or a U.S. territory before 2031.

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These updates represent only a segment of the changes introduced in the OBBBA. For business owners, this is an opportune moment to review capital investment strategies and tax planning approaches. Our team is available to assist you in assessing these new opportunities and optimizing your plans for 2025 and the years ahead.

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