Bonus Depreciation 2025: Is Full Deduction Coming Back?

Bonus depreciation has long been one of the most powerful tools in the tax code for reducing taxable income and increasing cash flow. And while the phase-down continues in 2025, new tax legislation being considered could bring back 100% bonus depreciation, offering a major opportunity for business owners, real estate investors, and anyone making large capital purchases.

In this article, we’ll break down the changes in bonus depreciation for the 2025 tax year, explain how it connects to the original Tax Cuts and Jobs Act (TCJA), and explore why now could be a smart time to act.

What Is Bonus Depreciation?

Bonus depreciation is a special tax deduction that allows businesses to write off a large portion—or sometimes the full amount—of a qualified asset’s purchase price in the year it is placed into service.

This is different from standard depreciation, where you recover the cost over many years.

Under Section 168(k) of the Internal Revenue Code, the bonus depreciation provision applies to depreciable assets used for business purposes, including:

Eligible Asset	Description / Example
New and Used Equipment Purchases	Machinery, tools, and other business-use equipment
Office Furniture and Fixtures	Desks, chairs, lighting, shelving, cabinetry
Qualified Improvement Property (QIP)	Interior non-structural improvements to commercial buildings
Certain Vehicles	Vehicles used more than 50% for business (subject to IRS limits)
Tangible Personal Property	Equipment, computers, signage, appliances, etc.
Land Improvements (via Cost Seg Studies)	Fencing, parking lots, landscaping, sidewalks, and signage (15-year class life)

By deducting a large portion of an asset’s cost in the first year, bonus depreciation helps reduce taxable income, leading to immediate tax savings and better cash flow.

TCJA: A Turning Point for Bonus Depreciation

When President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law in 2017, it created sweeping changes to the tax code. One major change was increasing the bonus depreciation rate to 100% for qualified property placed in service between September 27, 2017, and December 31, 2022.

Broader Goals of the Tax Reform

This was part of a larger effort to boost economic growth, cut the corporate income tax rate from 35% to 21%, and encourage domestic production and capital investment.

More Than Just Business Incentives

The TCJA also expanded the standard deduction, increased the qualified business income (QBI) deduction, and raised estate tax exemptions, creating benefits for both individuals and business owners.

Bonus Depreciation Phase-Down: Where We Are in 2025

Under current law, bonus depreciation is phasing out. Here’s the scheduled phase-down:

Tax Year	Percent Bonus Depreciation
2023	80%
2024	60%
2025	40%
2026	20%
2027+	0% (unless extended)

So for the 2025 tax year, you can deduct 40% of the full purchase price of qualified property in the first year. The remaining cost must be recovered over the asset’s useful life, using standard depreciation rules.

This phase-down affects all depreciable assets that meet the qualifications, including capital equipment, commercial buildings (through QIP), and components separated through a cost segregation study.

New Legislation: Could 100% Bonus Depreciation Return?

On May 13, 2025, the House Ways and Means Committee released a proposed tax bill that includes major tax changes. One of the most exciting provisions for investors and business owners is the proposed return of 100% bonus depreciation.

According to the draft legislation:

• The 100% bonus depreciation rate would apply to qualified property acquired and placed in service after January 19, 2025.
• The provision would remain in effect through December 31, 2029 (or 2030 for certain long-production-period property).

This bill builds on earlier Trump administration policies and is being advanced through the budget reconciliation process, which allows tax legislation to pass the Senate with a simple majority rather than the usual 60 votes.

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Why Bonus Depreciation Matters for Your Tax Strategy

Cut Taxes in the Year You Buy

For both small businesses and large enterprises, bonus depreciation can significantly reduce your tax liability in the same year you make a purchase.

By accelerating depreciation deductions, you reduce your gross income—which means you keep more of your money.

Immediate Tax Benefits for Capital Investments

This strategy is especially helpful for capital purchases made during the current year.

Whether you’re a construction company buying heavy machinery, a dentist upgrading office equipment, or a real estate investor renovating a property, bonus depreciation delivers real-time tax relief.

Real-World Example

Let’s say your business buys $500,000 of new equipment in mid-2025. Under the current 40% rule, you can deduct $200,000 immediately.

But if the new House bill passes, you might be able to deduct the full $500,000—all in the same tax year—resulting in major tax savings and better cash flow.

Who Benefits the Most?

The bonus depreciation rules apply broadly, but some groups stand to benefit more:

Who Benefits	How They Benefit
Real Estate Investors	Use cost segregation to accelerate depreciation on components like HVAC, lighting, and cabinetry
Small Businesses	Reduce taxable income without exceeding Section 179 limits
Construction & Manufacturing Firms	Deduct costs of heavy machinery, tools, and equipment upgrades
Medical Professionals	Deduct equipment purchases and office improvements when upgrading or expanding

Bonus Depreciation vs. Section 179

While both Section 179 and bonus depreciation let you deduct the cost of business assets, they operate differently:

• Section 179 has a deduction limit (about $1.2 million in 2025) and begins to phase out once your total purchases exceed a set amount.
• Bonus depreciation has no deduction limit or income restriction and can create a net operating loss.

Most tax professionals recommend using Section 179 first and then applying bonus depreciation to the remaining cost. That gives you flexibility while maximizing deductions.

Other Changes in the 2025 Tax Proposal

Besides bonus depreciation, the new bill includes several significant changes:

• Increases the qualified business income deduction (QBI) to 23%
• Expands the standard deduction for all filing statuses
• Raises the estate and gift tax exemption to $15 million
• Eliminates some deductions for high-income taxpayers using pass-throughs to bypass the SALT cap
• Adjusts rules for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI)
• Offers a new above-the-line deduction for overtime and tip income

This wide-ranging bill has bipartisan support and is being evaluated by the Joint Committee on Taxation for its projected impact on the economy and federal budget.

What Should You Do Right Now?

1. Evaluate your capital purchases for the year. Make sure they meet the definition of qualified property and are placed in service by year-end.
2. Talk to your tax advisor about timing your purchases. The “first use” rule means the deduction applies only in the year the asset becomes operational.
3. Consider a cost segregation study if you own or are buying real property. It can identify land improvements and tangible assets with short recovery periods.
4. Monitor legislation closely. The bonus depreciation provision could be enacted before the end of the year, impacting your 2025 tax return.

Final Thoughts

Whether the new law passes or not, bonus depreciation continues to be a powerful way to create immediate tax savings, especially in the first year an asset is placed in service.

But if the new bill is signed into law, we could see the return of 100% bonus depreciation, allowing you to expense the total cost of qualified assets once again fully.

Like in the years following the original TCJA, this would offer significant upfront deductions for businesses and investors making capital purchases. With tax reform moving quickly and the rules still evolving, it’s smart to get a strategy in place now.

Consult your tax professional (here is a link to MINE), understand how these provisions apply to your situation, and be prepared to act. 2025 could be one of the best opportunities in recent years to capture substantial tax benefits.