By Ryan J. McDonell, CPA, MSA, MSLT 

The One Big Beautiful Bill Act (OBBBA) includes several depreciation changes that will help small businesses. Here are the changes that you should be aware of:

100% Bonus Depreciation Restored

The new law permanently restores 100% first-year bonus depreciation for eligible assets acquired and placed in service after January 19, 2025. The deduction percentage was generally reduced to 80% for 2023, 60% for 2024, and 40% for assets placed in service between January 1, 2025, and January 19, 2025.

Eligible assets include most depreciable personal property such as equipment, computer hardware and peripherals, commercially available software and certain vehicles. First-year bonus depreciation can also be claimed for real estate qualified improvement property (QIP).

QIP includes any improvement to the interior portion of a non-residential building placed in service after the building was initially put into use. Expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and generally must be depreciated over 39 years.

Section 179 Increase

In tax years beginning in 2025, the OBBBA increases the maximum amount of assets that can immediately be written off, via Section 179 expensing, to $2.5 million. This is up from $1.25 million for 2025 under the old law.

A phase-out rule reduces the maximum Sec. 179 deduction if, during the year, a taxpayer places in service eligible assets in excess of $4 million. This is up from $3.13 million for 2025 under the old law. These increased OBBBA amounts will be adjusted annually for inflation for tax years beginning in 2026.

In addition to the assets discussed previously for bonus depreciation, Sec. 179 expensing is also allowed for roofs, HVAC equipment, fire protection and alarm systems, and security systems for non-residential real property. Sec. 179 may also be claimed for depreciable personal property used predominantly in connection with furnishing lodging.

New Asset Class: Qualified Production Property

The OBBBA introduces a new asset class called qualified production property (QPP). Taxpayers may take 100% first-year depreciation for qualified production property (QPP) in the year it is placed in service. QPP is non-residential real estate, such as a building, that’s used as an integral part of a qualified production activity, such as the manufacturing, production, or refining of tangible personal property. Before the OBBBA, non-residential buildings generally had to be depreciated over 39 years.

QPP does not include any part of non-residential real property used for offices, administrative services, lodging, parking, sales or research activities, software development, engineering activities and other functions unrelated to the manufacturing, production or refining of tangible personal property.

The favorable new 100% first-year depreciation deal is available for QPP when the construction begins after January 19, 2025, and before 2029. The property must be placed in service in the U.S. or a U.S. possession before 2031. Talk to the tax team at GT Reilly about evolving tax strategies for businesses, such as how depreciation changes may apply to your business. We’re here to help.