100% Bonus Depreciation Is Back: What Business Owners Need to Know After the OBBB
If you purchased equipment, vehicles, or other major assets for your business, depreciation rules matter more than you might think.
With the passage of the One Big Beautiful Bill Act (OBBB), bonus depreciation rules changed again, this time in a big way. The Internal Revenue Service has now issued guidance clarifying how business owners can apply these changes and what elections are available when filing.
Here’s what you need to know, in plain language.
What Is Bonus Depreciation? (Quick Refresher)
Bonus depreciation allows businesses to deduct a large portion, or sometimes all, of the cost of qualifying assets in the year they are placed in service, instead of spreading the deduction over many years.
Before the OBBB, bonus depreciation was being phased out. For 2025, the rate was scheduled to drop to just 40%.
That is no longer the case.
What Changed Under the OBBB?
The OBBB permanently reinstated 100% bonus depreciation for qualifying property that is:
Acquired after January 19, 2025, and
Placed in service after that date
This means eligible assets can now be fully written off in the first year, without worrying about future phase-downs.
Important: 100% Is the Default, Not the Requirement
While 100% bonus depreciation is now the default rule, business owners still have choices.
Depending on your situation, you may want to:
Take the full 100% deduction
Elect a reduced bonus depreciation rate
Opt out of bonus depreciation entirely for a class of assets
These decisions can have a major impact on cash flow, future deductions, and long-term tax planning.
The Transitional Reduced Rate Election
If this is your first tax year ending after January 19, 2025, you may choose to use a reduced bonus depreciation rate instead of 100%.
Available reduced rates include:
40% for most qualifying property
60% for certain long-production-period property and aircraft
This election must be made on a timely filed tax return, and it applies only to that specific year.
Can You Opt Out of Bonus Depreciation?
Yes.
Taxpayers may elect not to claim bonus depreciation for a specific class of property in a given tax year.
Keep in mind:
The election applies to all assets in the same class placed in service during that year
This is often used for long-term planning or income smoothing strategies
This is not a decision to make casually or after filing.
New Category: Sound Recording Productions
The OBBB expanded bonus depreciation eligibility to include qualified sound recording productions.
To qualify:
Production and recording must occur in the United States
Production must begin in a tax year ending after July 4, 2025
Key timing rules:
The asset is treated as acquired when principal recording begins
It is placed in service when the recording is first released or broadcast
Taxpayers may also elect out of first-year depreciation for these assets if desired.
Why These Decisions Matter
Bonus depreciation impacts more than just your current tax bill. It affects:
Cash flow planning
Future deductions
Net operating losses
Multi-year tax strategy
Choosing the wrong option can limit flexibility later, even if it saves tax today.
What to Prepare Before Filing
Before your return is filed, make sure you have:
Asset purchase or construction records
Placed-in-service dates
Asset use details
A clear discussion about whether full, reduced, or no bonus depreciation makes sense
These conversations should happen before filing, not after an IRS notice arrives.
Final Thoughts
The return of 100% bonus depreciation creates powerful opportunities, but also important decisions.
There is no one-size-fits-all answer. The best strategy depends on your income, growth plans, and long-term financial goals.
If you want help evaluating your options, planning ahead, or making sure elections are done correctly, our team can help.