New Opportunity for Small Business Owners: 100% New Asset Deductions
You can now add to your fleet or replace that old clunky equipment this year and deduct 100% of the cost. The new Section 168 bonus depreciation law gives small business owners an incredible opportunity to reduce their taxes while investing in their business growth. Here's everything you need to know about this game-changing tax benefit.
What Changed with the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made bonus depreciation permanent at 100% for qualifying assets purchased after January 19, 2025. This is a dramatic improvement from the old phasedown schedule that reduced bonus depreciation from 100% in 2022 to just 40% in 2025, with complete elimination planned for 2027.
Before OBBBA: Bonus depreciation was disappearing. 60% in 2024, 40% in 2025, 20% in 2026, and 0% by 2027.
After OBBBA: Permanent 100% bonus depreciation for all qualifying purchases made after January 19, 2025.
The purpose of this law is to encourage business investment and economic growth by allowing companies to immediately write off equipment purchases rather than spreading deductions over many years. Small businesses benefit most because they're more responsive to tax incentives when making investment decisions.
What Are the Rules for Qualifying Purchases?
Q: What assets qualify for 100% bonus depreciation?
A: Most business assets with a useful life of 20 years or less qualify, including machinery, equipment, vehicles, computers, furniture, and software. The property must be new to your business. You can buy used equipment, but you can't have used it before in any of your other businesses.
Q: What's the key date I need to remember?
A: January 19, 2025. Assets must be both purchased (under a binding contract) and placed into service after this date to get 100% bonus depreciation. If you bought equipment before January 19, 2025, but put it to work after that date, you only get 40% bonus depreciation.
Q: Can I buy from family members or related companies?
A: No. Purchases from related parties, family members, or other businesses you control don't qualify. The purchase must be an arm's length transaction from an unrelated seller.
When Should I Take the Full Deduction Now or Defer?
Q: Who benefits most from immediate 100% deductions?
A: Businesses with strong current profits benefit most because they can slash their tax bill right away. Service companies, contractors, and manufacturing businesses that need equipment upgrades can see huge cash flow improvements. If your business made good money this year and you need new assets, this deduction can save thousands in taxes.
Q: When might I want to defer the deduction instead?
A: You might want to spread out deductions if your business income varies a lot from year to year, or if you expect much higher profits (and tax rates) in the future. You can elect out of bonus depreciation on a class-by-class basis, choosing regular depreciation schedules instead. This keeps deductions available for years when you really need them.
How Does This Impact Business Value?
Q: Can bonus depreciation help if I'm planning to sell my business?
A: Yes, especially if you're selling within 5 years. Lower taxes from bonus depreciation improve your cash flow, letting you reinvest in growth initiatives that increase business value. Plus, buyers often value businesses with newer, efficient equipment higher than those with outdated assets that they will have to replace when the new owner takes over.
Case Study: Sarah's landscaping company bought $200,000 in new trucks and equipment in 2025. With bonus depreciation, she deducted the full amount, saving $60,000 in taxes (assuming a 30% rate). She used that tax savings to hire two more crews and expand her service area. When she sold the business three years later, the newer equipment and expanded operations contributed to her getting $300,000 more than originally projected.
How Does This Affect Other Tax Deductions?
Q: What happens to my Section 179 deduction?
A: You can use Section 179 and bonus depreciation together, but Section 179 gets applied first. Section 179 has dollar limits ($2.5 million for 2025), while bonus depreciation has no cap. For most small businesses, bonus depreciation is now the better choice but you can use them in combination if coordinated properly. Work with your CPA to be sure the strategy is structured properly.
Q: Does this impact my 199A deduction?
A: Yes, bonus depreciation reduces your business income, which can lower your 199A qualified business income deduction. However, the immediate tax savings from bonus depreciation often outweigh the reduced 199A benefit. Depending on your personal income the 199A deduction may be more valuable. Your CPA can run the numbers to see what works best for your situation.
What About Assets Purchased Before January 19, 2025?
Q: I bought equipment earlier this year. What happens?
A: Assets purchased between January 1, 2025, and January 19, 2025, only qualify for 40% bonus depreciation. Assets purchased in 2024 got 60% bonus depreciation. The remaining cost gets depreciated using normal schedules over the asset's useful life.
Important Reminders
Before making any large equipment purchase, consult with your CPA to ensure it qualifies and fits your tax strategy. They can help you decide whether to take bonus depreciation or elect out for better long-term planning.
Need a good CPA?
Reach out to me, and I'll connect you with a qualified tax professional who understands small business needs and can maximize your tax savings while keeping you compliant.
The Section 168 bonus depreciation rule is now permanent, giving you the certainty to plan major equipment purchases with confidence. Whether you need new vehicles, machinery, or technology, this deduction can put significant money back in your pocket while helping your business grow and increase in value.
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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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