The OBBBA, signed into law on July 4, 2025, reinstates and strengthens several tax incentives. A significant change in this tax incentive was a renewal of the 100% bonus depreciation—originally introduced under the 2017 Tax Cuts and Jobs Act (TCJA).

What is Bonus Depreciation?

Bonus depreciation allows a business to accelerate the depreciation of qualifying property and qualifying production property resulting in a larger deduction.

Previously, bonus depreciation was set to phase down—down to 40% in 2025 and eliminated by 2027. The OBBBA both restores and makes a 100% deduction permanent for qualified assets acquired after January 19, 2025.

Understanding the Mechanics

Qualifying Property

Applies to tangible personal property and specified enhancements (e.g., parking lot/land improvements, equipment, furniture, qualified software) placed into service after January 19, 2025.

Qualifying Production Property

The Act also broadens bonus depreciation to include nonresidential manufacturing facilities—if construction begins by 2029 and the property is used in U.S.-based production.

Full Expensing in Year One

Businesses can immediately expense 100% of the cost for assets placed in service after January 19, 2025. This accelerates deductions, providing immediate tax relief.

Optional 40% Election

Taxpayers have the flexibility to elect a 40% bonus depreciation for the first tax year if that yields better overall tax outcome for a multi-year tax plan.

Strategic Implications for Businesses

Tax Planning & Cash Flow

Maximizing bonus depreciation early means lower taxable income in high-profit years—boosting free cash flow for reinvestment, debt reduction, or expansion.

Capital Project Acceleration

Companies planning major investments (machinery, manufacturing plants, even aircraft) can leverage the full expensing to front-load deductions, improving ROI and reducing financing costs.

Cost Segregation Benefits

The reinstatement enhances the effectiveness of cost segregation studies for real estate: assets reclassified into shorter-lived categories (5, 7, 15 years) now qualify for 100% depreciation in year one—ushering rapid tax savings.

How Specific Industries Benefit?

Manufacturing Industries

1. Immediate Deduction of Capital Equipment Costs

Manufacturers invest heavily in machinery, tools, automation systems, and assembly line equipment. Bonus depreciation allows them to write off 100% of the cost of qualifying new or used equipment in the year it is placed in service.

2. Encourages Expansion and Modernization

Bonus depreciation makes it more affordable to upgrade outdated equipment or expand facilities. This incentivizes reinvestment in technology and process improvements to stay competitive.

3. Used Equipment Qualifies

Under TCJA, used property qualified as long as it was “new to the taxpayer.” OBBA maintains this, meaning manufacturers can now buy used machines at a discount and still get full depreciation benefits.

4. Accelerated Write-Off of Capital Projects

Bonus depreciation applies not just to equipment, but also to certain improvements to manufacturing facilities (e.g., electrical systems, HVAC for process needs). That means buildouts or reconfigurations of production lines may also qualify.

Real Estate Investors

1.Cost Recovery on Qualified Property Improvements

Real estate companies that invest in qualified improvement property (QIP) — such as interior renovations to non-residential buildings — can potentially deduct 100% of those costs in the first year.

2. Immediate Write-Off of Personal Property

Real estate companies can deduct the full cost of items like furniture, appliances, and equipment used in rental properties or commercial buildings (e.g., HVAC systems, lighting, and security systems) might qualify.

3. Bonus Depreciation for Buildouts and Tenant Improvements

Landlords can benefit from being able to write off tenant improvements more quickly. This incentivizes investments in attracting or retaining commercial tenants.

4. Cost Segregation Amplifies Benefits

Real estate firms often use cost segregation studies to separate building components into shorter-life categories (e.g., 5, 7, or 15 years). These components may qualify for 100% bonus depreciation, greatly accelerating deductions.

Health Care Providers

1.Immediate Expensing of Medical Equipment and Technology

Hospitals, clinics, and outpatient centers can now fully expense the cost of qualifying medical equipment—such as MRI machines, surgical robots, diagnostic tools, and IT infrastructure—placed in service after January 19, 2025. This accelerates tax deductions and improves cash flow for reinvestment in patient care.

2. Facility Upgrades and Expansion

Capital improvements to nonresidential health care facilities (e.g., HVAC systems, lighting, security, and specialized treatment rooms) may qualify for 100% bonus depreciation. This supports modernization efforts and expansion into underserved areas.

3. Used Equipment Still Qualifies

Health care providers purchasing used but “new-to-the-taxpayer” equipment—such as refurbished imaging systems or second-hand surgical tools—can still claim full bonus depreciation, reducing acquisition costs.

4. Cost Segregation for Medical Buildings

Medical office buildings and outpatient centers can benefit from cost segregation studies that reclassify components (e.g., cabinetry, flooring, specialized plumbing) into shorter-lived property. These components may now qualify for immediate expensing, significantly reducing taxable income in the year of acquisition or renovation.

5. Incentive for Rural and Community Health Investment
The ability to front-load deductions may encourage investment in rural or community-based health facilities, where upfront capital costs are often a barrier to expansion.

Conclusion

The One Big Beautiful Bill Act’s permanent expansion of 100% bonus depreciation is a monumental win for capital-intensive businesses. By turning once-gradual write-offs into immediate deductions, firms gain decisive tax and cash flow advantages from the moment investments hit the books. While this change ushers in potent planning opportunities, companies should carefully evaluate state conformity, AMT exposure, and recapture risks to ensure tax optimization.

Questions?

For further guidance or personalized advice on this deduction, please contact your Polk and Associates, PLC advisor.

This article is for informational purposes only and should not be construed as tax advice.

Please consult your advisor at Polk and Associates for tax advice specific to your tax situation.

Polk & Associates

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