100% Bonus Depreciation Is Now Permanent — A Powerful 2025 Tax Strategy for Small Business Owners

🚀 100% Bonus Depreciation Is Now Permanent — A Powerful 2025 Tax Strategy for Small Business Owners

Starting in 2025, the depreciation rules for business property change in a big way. Under prior law, Bonus Depreciation was scheduled to phase down — 80% in 2023, 60% in 2024, 40% in 2025, and then gradually disappear.

With the new law, that phase-down schedule is eliminated and 100% bonus depreciation is restored and made permanent for qualifying property.
In practical terms, this means that when you buy equipment, machinery, computers, vehicles, or other eligible assets, you no longer have to spread deductions over many years. You can expense 100% of the cost in the first year.

1️⃣ What Changed with 100% Bonus Depreciation?

Before the 2025 changes, bonus depreciation was on a fading schedule and was expected to disappear over time. Under the new rules, that phase-down is removed and qualifying property is again eligible for a full 100% write-off in the first year.

• Effective date: Applies to property acquired and placed in service after January 19, 2025.
• Deduction amount: 100% of the acquisition cost may be claimed as bonus depreciation in the first year.
• Duration: The 100% rate is not temporary — current law treats it as a permanent rule unless Congress changes it again.
• Who can use it: Sole proprietors, partnerships, S corporations, and C corporations can all benefit.

In other words, after 2025 “when” and “how” you buy business assets becomes a key driver of your taxable income and cash flow.

2️⃣ What Counts as Qualified Property?

The 100% bonus depreciation rules only apply to Qualified Property as defined in the Internal Revenue Code. In day-to-day practice, you can think of it this way:

• Property with a recovery period of 20 years or less
  (machinery, equipment, computers, office furniture, certain land improvements, etc.)
• Business vehicles
  (subject to separate luxury auto limitations for passenger vehicles)
• Qualified Improvement Property (QIP)
  — certain interior improvements to nonresidential buildings
• Some film, TV, and live theatrical production costs
• Certain utility, power, and communications infrastructure assets

Since 2017, used property can also qualify for bonus depreciation if specific conditions are met. At a minimum, you need to confirm that:

• The property was not previously used by the same taxpayer.
• The property was not acquired from a related party (family member, entity under common control, etc.).
• The property is actually placed in service for business use after acquisition.

A practical way to remember this is: “New or used, as long as it’s new to your business and not from a related party, it can often qualify.”

3️⃣ Section 179 vs Bonus Depreciation — How to Choose

Many taxpayers view Section 179 and bonus depreciation as identical because both can provide a first-year deduction. In reality, the two provisions work very differently and can produce very different tax results.
With 100% bonus depreciation now permanent, it is more important than ever to understand when to rely on Section 179 and when to lean on bonus depreciation.

The table below summarizes how EA and CPA practitioners typically compare the two when advising small business owners:

🔍 Summary: How practitioners really choose between the two

• High-dollar assets (trucks, heavy equipment, large machinery)
  → Bonus depreciation is usually the first choice.
• Start-ups and businesses planning to use NOLs
  → Bonus depreciation is more flexible because it is not limited by taxable income.
• Owners who want very simple state income tax filings
  → Bonus depreciation often produces fewer state-level adjustments.
• Profitable, smaller operations with modest equipment costs
  → Section 179 still works well, especially when you want tighter control over the deduction.

📝 Order of application under the tax rules

When a taxpayer is eligible to claim both Section 179 and bonus depreciation on the same property, the general order is:

1. Step 1 — Apply Section 179 to the extent you elect and are allowed for the year.
2. Step 2 — Apply 100% bonus depreciation to any remaining depreciable basis in that property.
3. Step 3 — Apply regular MACRS depreciation to whatever basis, if any, is left.

In practice, you can think of Section 179 as an optional, elective tool and bonus depreciation as the automatic “turbo boost” that follows unless you elect out.

4️⃣ Five Practical Tax Strategies for Small Businesses

• 1. Time major equipment purchases for after 2025
  If you are planning a large upgrade in machinery or vehicles, consider scheduling purchases so they qualify for the permanent 100% bonus depreciation window.
• 2. Treat used equipment as a planning opportunity
  Used trucks or machinery can qualify if the seller is not related and you did not previously use the asset. Compare the total ROI of a used asset with bonus depreciation versus a new one with similar tax treatment.
• 3. Use bonus depreciation to support new locations and build-outs
  When opening a café, restaurant, or franchise, you can often expense most of your initial CAPEX — espresso machines, refrigerators, POS systems, furniture, and certain interior improvements — in year one, preserving precious cash.
• 4. Coordinate entity structure with asset planning
  S corporations and C corporations can both use bonus depreciation, but the impact on owners’ personal returns can differ. When you are considering an entity change, look at when large asset purchases will occur and plan accordingly.
• 5. Intentionally create NOLs for later years
  Some businesses purposely “over-deduct” in a year of heavy investment to generate an NOL that can offset future income when the business is more profitable. Bonus depreciation is a key tool for this type of long-term planning.

5️⃣ Real-World Examples of First-Year Savings

6️⃣ EA Practice Notes and Common Pitfalls

7️⃣ Internal Reference Links

8️⃣ IRS Resources and Official Guidance

9️⃣ Google-Friendly Q&A

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