Here’s what HIVE AI had to say about “Is 100% bonus depreciation permanently reinstated, and what property qualifies under the One Big Beautiful Bill?”:
Permanent Reinstatement of 100% Bonus Depreciation Under the One Big Beautiful Bill
The One Big Beautiful Bill Act (OBBBA) has indeed permanently reinstated 100% bonus depreciation, representing one of the most significant business tax provisions in the legislation. This restoration provides substantial benefits for businesses making capital investments and eliminates the uncertainty that previously surrounded the phasing out of this valuable deduction.
Permanent Extension and Enhancement of Bonus Depreciation
Section 168(k) is amended in paragraph (1)(A), by striking “the applicable percentage” and inserting “100 percent”, and by striking paragraphs (6) and (8) One Big Beautiful Bill Act: Sec. 70301. Full expensing for certain business property under the OBBBA. This modification makes the 100% bonus depreciation rate permanent rather than subject to the phase-down schedule that was previously in effect.
The OBBBA restores and makes permanent 100 percent bonus depreciation for short-lived asset investment, which allows businesses to fully and immediately deduct the cost of many investments when calculating taxable income. The TCJA temporarily provided 100 percent bonus depreciation through 2022, at which point the bonus amount began falling by 20 percentage points each year until it phased out entirely at the end of 2026. Tax Foundation
The permanent nature of this provision provides crucial certainty for business planning and investment decisions. The permanent restoration of 100 percent bonus depreciation is a big improvement for the tax code because it removes penalties for investment associated with delayed depreciation deductions, creating certainty and a degree of simplification for taxpayers, and preserving the large pro-growth benefit of bonus depreciation over the long term. Tax Foundation
Qualifying Property Under the Enhanced Bonus Depreciation Rules
The fundamental definition of qualified property remains largely unchanged from the existing Section 168(k) framework, but the OBBBA has made several important modifications to expand eligibility and remove certain time-based restrictions.
Basic Qualification Requirements
Qualified property includes any tangible property with a recovery period of 20 years or less. § 168(k)(2)(A)(i)(I). Dawson U.S. Tax Court Opinions: Gregory R. Schnackel & Laura B. Schnackel This foundational requirement continues to serve as the primary criterion for determining whether property qualifies for bonus depreciation treatment.
The property must also meet several additional requirements that have been carried forward from the existing bonus depreciation framework. Qualified property can be either new property or certain used property. It is not excepted property (defined next). IRS – Publication 225: Farmer’s Tax Guide IRS – Publication 225: Farmer’s Tax Guide This inclusion of used property represents a significant expansion from earlier versions of bonus depreciation that required original use to commence with the taxpayer.
Specific Categories of Qualifying Property
The OBBBA maintains the broad categories of property that qualify for bonus depreciation treatment. Broadly speaking, “qualified property” included personal property that had a class life of 20 years or less; additionally, the property was required to be “new,” meaning that the original use of the property must have commenced with the taxpayer in question. However, the current version has eliminated the “original use” requirement, significantly expanding the scope of eligible property.
Computer software represents another important category of qualifying property. Computer software defined in and depreciated under section 167(f)(1) of the Internal Revenue Code IRS – Publication 225: Farmer’s Tax Guide continues to qualify for bonus depreciation treatment under the enhanced rules.
Water utility property also maintains its qualification status. Water utility property depreciated under MACRS IRS – Publication 225: Farmer’s Tax Guide remains eligible for the 100% bonus depreciation deduction under the OBBBA framework.
Excepted Property Categories
The OBBBA maintains certain exclusions from bonus depreciation eligibility to prevent abuse and ensure the provision serves its intended economic stimulus purpose. Qualified property acquired after September 27, 2017, does not include any of the following: Property placed in service, or planted or grafted and disposed of in the same tax year. Property converted from business use to personal use in the same tax year acquired. IRS – Publication 225: Farmer’s Tax Guide
Additionally, property subject to the Alternative Depreciation System (ADS) generally does not qualify for bonus depreciation. Property required to be depreciated under the Alternative Depreciation System (ADS). This includes listed property used 50% or less in a qualified business use. IRS – Publication 225: Farmer’s Tax Guide This exclusion ensures that property with limited business use does not receive the enhanced depreciation benefits.
The OBBBA also maintains exclusions for certain specialized property categories. Property described in section 168(k)(9)(A) of the Internal Revenue Code and placed in service in any tax year beginning after December 31, 2017. Property described in section 168(k)(9)(B) of the Internal Revenue Code and placed in service in any tax year beginning after December 31, 2017. IRS – Publication 225: Farmer’s Tax Guide
Enhanced Treatment of Plants and Agricultural Property
The OBBBA makes significant improvements to the treatment of plants and agricultural property under the bonus depreciation rules. Section 168(k)(5)(A) is amended by striking “planted before January 1, 2027, or is grafted before such date to a plant that has already been planted,” in the matter preceding clause (i) and inserting “planted or grafted”. One Big Beautiful Bill Act: Sec. 70301. Full expensing for certain business property
This modification removes the time-based restrictions that previously limited bonus depreciation for plants, making the provision permanent and more broadly applicable to agricultural investments. The change ensures that agricultural businesses can benefit from the same enhanced depreciation treatment as other qualifying industries.
Introduction of Qualified Production Property
One of the most significant innovations in the OBBBA is the introduction of a new category called “qualified production property” that receives special depreciation treatment. The term ‘qualified production property’ shall not include that portion of any nonresidential real property which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production, or refining of tangible personal property. The term ‘qualified production activity’ means the manufacturing, production, or refining of a qualified product. One Big Beautiful Bill Act: Sec. 70307. Special depreciation allowance for qualified production property
This new category specifically targets manufacturing and production facilities, providing enhanced depreciation benefits for nonresidential real property used in qualifying production activities. QPP is now eligible for 100% bonus depreciation. QPP includes non-residential real property that is used in the activity of manufacturing, production or refining of qualified products. The change applies to construction that begins after January 19, 2025 and before January 1, 2029 and is placed in service by 2031.
Coordination with Other Tax Provisions
The enhanced bonus depreciation rules under the OBBBA coordinate with various other tax provisions to ensure proper treatment across different scenarios. Section 460(c)(6)(B) is amended by striking “which” and all that follows through the period and inserting “which has a recovery period of 7 years or less.” One Big Beautiful Bill Act: Sec. 70301. Full expensing for certain business property This modification ensures proper coordination with long-term contract accounting rules.
The OBBBA also addresses the interaction between bonus depreciation and Section 179 expensing. While both provisions allow for immediate deduction of qualifying property costs, they operate under different rules and limitations. For 2025, the Section 179 deduction limits have increased to $2,500,000 (phaseout begins at $4,000,000) and are then indexed for inflation on an annual basis.
Effective Dates and Implementation Timeline
The permanent 100% bonus depreciation provisions have specific effective dates that businesses must consider for tax planning purposes. Permanently restores 100% bonus depreciation for business property placed in service after January 19, 2025. This effective date ensures that businesses making investments after the OBBBA’s enactment can immediately benefit from the enhanced depreciation treatment.
The coordination between the permanent bonus depreciation and other business provisions creates a comprehensive framework for business investment incentives. Permanent 100% Bonus Depreciation: The OBBBA permanently restores 100% first-year bonus depreciation for the cost of qualified new and used assets acquired and placed into service after January 19, 2025. This provision, which was slated to phase down, now provides a consistent and powerful incentive for capital investment. Additionally, a new 100% depreciation deduction is introduced for “qualified production property” (nonresidential real property used in manufacturing) placed in service after July 4, 2025, and before 2031.
Economic Impact and Business Planning Implications
The permanent restoration of 100% bonus depreciation represents a significant economic stimulus measure that encourages business investment and capital formation. By shifting depreciation deductions forward in time, section 168(k) generally increased the present value of the depreciation deductions attributable to a given piece of property, increasing the incentive to invest in new property.
The elimination of the phase-down schedule provides businesses with long-term certainty for investment planning. The Act amended these percentages to 100 percent for most property placed in service between September 28, 2017 and the end of 2022, 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, 20 percent in 2026, and 0 thereafter. Under the OBBBA, this phase-down schedule is eliminated, providing permanent 100% bonus depreciation for qualifying property.
The inclusion of used property in the bonus depreciation framework significantly expands the scope of qualifying investments. The Act also removed the “original use” requirement, meaning that taxpayers could claim bonus depreciation on “used” property. This change allows businesses to claim bonus depreciation on a much broader range of property acquisitions, including used equipment and machinery.
The permanent 100% bonus depreciation under the One Big Beautiful Bill Act represents a fundamental shift in business tax policy that provides substantial benefits for capital investment while creating long-term certainty for business planning. The expanded definition of qualifying property, combined with the introduction of qualified production property and the elimination of time-based restrictions, creates a comprehensive framework that encourages business investment across multiple sectors of the economy.
Sources
- One Big Beautiful Bill Act: Sec. 70301. Full expensing for certain business property
- One Big Beautiful Bill Act: Sec. 70307. Special depreciation allowance for qualified production property
- Tax Foundation
- IRS – Publication 225: Farmer’s Tax Guide
- IRS Notice 2019-41
- IRS Notice 2020-52
- Dawson U.S. Tax Court Opinions: Gregory R. Schnackel & Laura B. Schnackel
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