Your Guide to the New Depreciation Rules Under the One Big Beautiful Bill Act

Katie Lawson
5 days ago
5 min read

If you buy equipment, vehicles, or improve your space, you just got a powerful tax upgrade. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, supercharges cost recovery so you can write off more, faster. Used right, you can keep five or six figures in your pocket instead of sending it to the IRS.

Here’s how you make it work for you—without tripping over the fine print.

1) The Big One: 100% Bonus Depreciation Is Back

You can now deduct 100% of the cost of qualifying assets in the year you place them in service—no waiting years to recover your investment. That means immediate cash savings.

What qualifies:

Tangible property with a recovery period of 20 years or less (most equipment, machinery, furniture)
Computer software (off-the-shelf, non-custom)
Certain real property improvements, including Qualified Improvement Property (see #3)
New or used assets acquired from an unrelated party

Timing rules you can’t ignore:

Generally applies to property acquired and placed in service after January 19, 2025
Transitional property placed in service January 1–19, 2025 follows pre-OBBBA phase-down rules; documentation matters

Avoid it: Buying from related parties, missing placed-in-service dates, or lacking proof of when you “acquired” the asset can blow your 100% deduction.

Example: You buy a used $350,000 CNC machine from an unrelated dealer and place it in service in March 2026. You can generally expense the full $350,000 in year one—potentially saving $70,000+ in cash taxes depending on your tax rate.

2) What About That January 1–19, 2025 Window?

This brief period sits under the phase-down rules that were in effect before OBBBA. In plain English: don’t assume 100% for assets placed in service during this window.

Your move:

Gather purchase orders, invoices, delivery tickets, and placed-in-service logs now
Confirm whether phase-down percentages apply to your assets
Ask whether an election or safe harbor could improve your outcome

Warning sign: “We received it in January 2025 but didn’t document when we started using it.” That’s how you lose bonus depreciation.

3) Qualified Improvement Property (QIP): Interior Renovations Win

If you improve the interior of nonresidential real property, QIP retains a 15-year life and is bonus-eligible—meaning you can often expense 100% in year one.

QIP examples that can qualify:

Interior buildouts, lighting, flooring, and interior HVAC distribution
Office, clinic, retail, or restaurant renovations
Space reconfigurations that don’t touch the structure

Not QIP:

Enlarging the building
Elevators/escalators
Internal structural framework

Example: You spend $600,000 renovating a leased office in 2026. With proper classification as QIP, you can typically expense the full $600,000 immediately.

4) New Boost for Domestic Production

OBBBA adds an immediate write-off for certain “qualified production property” tied to U.S. manufacturing and production investments. If you’re building out or upgrading plant capacity, you may be able to expense the entire eligible investment when it’s placed in service.

Action steps:

Map project timelines (start of construction and placed-in-service dates matter)
Identify qualifying components early with your advisors
Keep contracts and change orders organized to support eligibility

5) Section 179 Got Bigger (And Plays Well With Bonus)

Section 179 expensing complements bonus depreciation and now allows higher immediate write-offs for qualifying property, subject to business income and phase-out limits.

How to use it:

Use Section 179 surgically for assets where state conformity is better than bonus
Prioritize assets with mixed business/personal use where Section 179 gives you more control
Model both options; you can mix methods by class of asset

Quick note: Section 179 has income and investment limits; bonus does not. For larger purchases, bonus depreciation is often the workhorse, with Section 179 as your precision tool.

6) Interest Limitation Relief: More Room to Deduct Interest

OBBBA improves the business interest deduction by removing depreciation, amortization, and depletion from the ATI calculation (a shift that generally allows more interest to be deducted).

Why you care:

Bigger first-year write-offs no longer choke your interest deduction as severely
You still need to model the interaction of bonus depreciation and interest limits

Pro move: Run side-by-side scenarios—full bonus vs. partial bonus vs. electing out for specific classes—to maximize both deductions.

Common Mistakes (And How You Avoid Them)

Weak placed-in-service documentation
1. Consequence: Losing the year-one deduction
2. Avoid it: Keep delivery, installation, inspection, and first-use logs tied to each asset
Related-party or “used by you” issues on used property
1. Consequence: Disqualified for bonus
2. Avoid it: Buy from unrelated parties and verify prior use history
Misclassifying real estate improvements
1. Consequence: Missing QIP or mislabeling structural work as QIP
2. Avoid it: Have a professional classify costs; consider a cost segregation study
Ignoring state nonconformity
1. Consequence: Big federal deduction, small or no state deduction—unexpected cash taxes
2. Avoid it: Map federal vs. state treatment before you buy
Missing elections or safe harbors
1. Consequence: Locked into a suboptimal result
2. Avoid it: Calendar your election deadlines and attach statements to original returns

Should You Ever Opt Out of Bonus Depreciation?

Sometimes, yes. You might elect out:

To smooth income over several years (e.g., you expect higher future rates)
To preserve interest deductions if your modeling shows a better overall result
To manage state tax exposure where bonus isn’t allowed

Rule of thumb: If cash is tight and you need immediate savings, bonus is your friend. If you expect much higher profits later, consider pacing deductions.

What To Do Next: A 7-Step Action Plan

Build a 12–18 month capital plan with target placed-in-service dates
Pre-clear asset eligibility (new vs. used, related parties, production property)
Lock down documentation: purchase orders, delivery/installation, first-use logs
Classify real estate costs early; order a cost segregation study for large projects
Model Section 179 vs. bonus vs. regular MACRS by asset class and by state
Re-run your interest limitation with OBBBA rules before you file
Set filing reminders for elections you’ll need on your original return

Quick FAQs

Does used property qualify? Yes—if acquired from an unrelated party and not previously used by you or a related party.
What if I ordered equipment in 2024 but installed it in 2026? Acquisition and placed-in-service dates both matter; bring the contract and delivery timeline to your advisor.
Are vehicles eligible? Many are, but luxury auto caps and SUV weight rules still apply—plan before you buy.
Can I combine Section 179 and bonus? Yes. You can mix methods by asset class to get the best result.'

Let’s Get Your Plan in Place

You don’t have to guess your way through OBBBA. When you time purchases, classify assets correctly, and choose the right elections, you keep more cash in your business—now.

At The Law Office of Katie A. Lawson, PLLC, we build depreciation strategies that fit your goals and keep you compliant. Contact us before you buy so we can align your contracts, timelines, and elections for maximum savings.