Key Depreciation & Expensing Updates for 2025

Changes in Depreciation Rules

1. 100% Bonus Depreciation

The One, Big, Beautiful Bill Act (OBBBA), signed into law in July 2025, permanently restores 100% bonus depreciation for qualifying assets acquired and placed into service after January 19, 2025. This means businesses can deduct the entire cost of eligible assets in the year they are placed into service.

• Qualifying Assets for 100% bonus depreciation include:
  • Equipment and machinery
  • Vehicles (subject to limitation)
  • Office assets (computers, furniture, etc.)
  • Business software
  • Qualified Improvement Property (QIP), which refers to nonstructural improvements to non-residential buildings.

Assets acquired before January 20,2025 will follow the old schedule where there’s only 40% bonus in 2025, so the acquisition date matters.

2. Section 179 Expensing:

The maximum amount that can be immediately written off under Section 179 has increased to $2.5 million, with a phaseout threshold of $4 million. This is significant from previous limits, allowing businesses to deduct more in the year assets are placed into service.

Business Interest Deduction Enhancement

The OBBBA restores depreciation and amortization add-backs when calculating adjusted taxable income (ATI) for business interest limitation purposes.

What does this mean?
Instead of limiting your interest expense deduction to 30% of your net profit, you will calculate your interest expense deduction to 30% of net profit after adding back your depreciation expense.

Example:

A business with $100,000 net profit and $10,000 depreciation now has $110,000 adjusted taxable income for interest limitation calculations expanding deductible interest from $30,000 to $33,000.

Conversely, a business with no net profit and $10,000 depreciation now has $10,000 adjusted taxable income for interest limitation calculations expanding deductible interest from zero to $3,000.

These changes simplify tax planning for businesses, allowing for improved cash flow and immediate tax benefits. Businesses should consider how these rules interact with their other tax provisions.

As always, please call our office with any questions or concerns you may have.