What is Bonus Depreciation and Why it Matters for Businesses?

Bonus depreciation is a powerful tax incentive designed to help businesses reduce their taxable income. By allowing companies to deduct a significant portion of an asset’s cost upfront, it provides cash flow benefits and encourages investment in new equipment and property.

Big Update: Under the One Big Beautiful Bill (2025), 100% bonus depreciation is back, permanently. That means bigger first-year deductions, more strategic flexibility, and significant savings opportunities for real estate investors and business owners.

What is Bonus Depreciation?

Bonus depreciation is a powerful tax incentive designed to encourage business investment by allowing companies to immediately deduct a significant percentage of the cost of eligible assets in the year they are placed in service.

This provision reduces taxable income, offering immediate tax relief and improving cash flow, a critical advantage for businesses looking to reinvest and grow.

What Changed in 2025?

The Tax Cuts and Jobs Act (TCJA) originally allowed 100% bonus depreciation for property placed in service between 2017 and 2022. Starting in 2023, the percentage began phasing down (80% in 2023, 60% in 2024, 40% in 2025).

Now, thanks to the One Big Beautiful Bill signed on July 4, 2025, 100% bonus depreciation is permanently reinstated for qualifying property acquired and placed in service after January 19, 2025.

This is a major win for property owners, manufacturers, and entrepreneurs who want to accelerate deductions and reinvest capital back into their business.

How Bonus Depreciation Works

Bonus depreciation allows you to:

• Deduct 100% of the cost of eligible assets in the year they’re placed in service.

• Apply it to both new and used property (as long as it’s the first time you’re using it).

• Use it alongside other strategies, like cost segregation.

  
  

In practice, this means you don’t have to spread out deductions over 5, 15, or 39 years, you get the savings up front.

Eligible Assets

To qualify for bonus depreciation, assets must generally have a useful life of 20 years or less.

Furniture, Fixtures, and Tangible Personal Property

Office furniture, shelving, signage, and similar items are usually on a 5-year schedule. Under the new rules, they can be 100% deducted right away.

Specialized Equipment and Fixtures

Think HVAC systems, commercial lighting, electrical wiring, and restaurant kitchen equipment. These assets often fall into 5 or 7-year categories and can now be fully expensed thanks to bonus depreciation.

Qualified Improvement Property (QIP)

Interior upgrades to nonresidential buildings (like drywall, ceilings, lighting, and plumbing) count as QIP. With a 15-year schedule, these improvements are bonus-eligible and fully deductible upfront.

Land Improvements

Parking lots, landscaping, fences, sidewalks, and irrigation systems all fall under this category. Normally depreciated over 15 years, these exterior improvements can now be written off in full the year they’re placed in service.

*Land does NOT qualify, depreciation is meant to help recover the costs of assets that wear out or become outdated over time, and that doesn’t apply to land itself.

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Conclusion

Bonus depreciation is a powerful tax strategy that offers significant financial advantages for businesses willing to invest in new assets. By allowing immediate deduction of a substantial portion of an asset's cost, this tax provision not only provides short-term financial relief but also serves as a strategic tool for long-term business growth and economic stimulation.

Navigating bonus depreciation is not a one-size-fits-all approach. The optimal strategy depends on multiple factors, including your business's financial health, investment plans, and specific industry dynamics. Tax laws are complex and subject to change, making reaching out to your CPA or Tax Advisor critical.

If you’re planning to buy property, renovate, or upgrade in 2025, the time to act is now. A cost segregation study paired with bonus depreciation could save you hundreds of thousands in taxes this year alone.