OBBBA: The Return of 100% Bonus Depreciation
Navigating the One Big Beautiful Bill Act (OBBBA): Maximizing Your Business's Capital Investment and Tax Savings
Bonus depreciation is a tax provision that allows businesses to immediately deduct a portion of the cost of eligible assets in the year they are placed into service, rather than spreading the deduction over several years. This accelerated deduction reduces a company’s taxable income, leading to significant tax savings and freeing up capital for other investments.
Prior to the OBBBA, the bonus depreciation rate, which was set at 100% by the 2017 Tax Cuts and Jobs Act (TCJA), was scheduled to phase down by 20% each year, starting in 2023. This created uncertainty and made long-term capital investment planning difficult for many businesses.
Key Takeaways
How can businesses use bonus depreciation to save money on taxes?
Bonus depreciation allows businesses to immediately deduct a significant portion of an asset’s cost, which reduces their taxable income and leads to substantial tax savings.
What is the biggest change the OBBBA made to bonus depreciation?
The OBBBA repeals the scheduled phase-down and permanently reinstates 100% bonus depreciation for qualifying property, providing long-term certainty for businesses.
How can a business ensure it gets the most out of bonus depreciation?
To maximize the benefit, businesses can use services like cost segregation studies, strategic tax planning, and comprehensive compliance and filing assistance.
How the OBBBA Changes Everything
The OBBBA repeals the scheduled phase-down and permanently reinstates 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This change provides businesses with long-term certainty and a clear incentive to invest in growth.
Key impacts of the OBBBA on bonus depreciation services include:
- Permanent 100% Bonus Depreciation: This is a major win for businesses of all sizes, allowing them to fully expense the cost of new and qualifying used assets like machinery, equipment, and certain building improvements in the year of acquisition.
- Expansion of Section 179 Expensing: The new law also significantly increases the maximum Section 179 deduction to $2.5 million and the phase-out threshold to $4 million, further enhancing immediate write-offs for a wider range of assets.
- Favorable Business Interest Deduction Rules: The OBBBA changes the calculation for the business interest deduction limitation, reverting to an EBITDA-based approach. This allows businesses with significant capital investments to deduct more of their interest expense, which, in turn, makes it easier to finance large purchases eligible for bonus depreciation.
“Don’t leave money on the table. Contact us to learn how the OBBBA’s permanent bonus depreciation can benefit your business.”
Capitalizing on Bonus Depreciation
Navigating the intricacies of the OBBBA’s permanent bonus depreciation can be complex, but strategic services can help businesses fully capitalize on these tax benefits. Cost segregation studies can identify and reclassify building components, making a greater portion of a property eligible for accelerated deductions. Additionally, our strategic tax planning ensures you time your capital investments to maximize write-offs under the new, permanent 100% bonus depreciation rules. Finally, our comprehensive compliance and filing services guarantee that all necessary IRS forms, such as Form 4562, are accurately completed and submitted, ensuring you meet all eligibility requirements and don’t leave valuable tax savings on the table.
Cost Segregation Studies
Cost segregation is a strategic tax planning tool that helps businesses, especially those in real estate, maximize their depreciation deductions. By conducting a detailed study, we can identify and reclassify building components that are typically depreciated over a long period (39 years for commercial buildings) into shorter-lived categories (5, 7, or 15 years). This includes assets like electrical systems, plumbing, decorative lighting, and specialized millwork. Under the OBBBA, these reclassified components can become eligible for 100% bonus depreciation, allowing businesses to immediately expense a significant portion of their building costs in the year of acquisition or renovation. This accelerated deduction reduces taxable income and provides a substantial cash flow benefit.
Strategic Tax Planning
The OBBBA’s permanent bonus depreciation offers a powerful incentive for businesses to invest in capital assets, but effective timing is crucial. Our tax professionals work with you to create a long-term tax strategy that integrates these new rules into your overall financial plan. We help you analyze potential asset acquisitions and capital expenditures to determine the optimal timing for purchases. For example, by acquiring assets and placing them into service before the end of the tax year, you can maximize your immediate deductions. Our goal is to ensure your business makes informed decisions that align with your growth objectives while also taking full advantage of the tax savings available through the OBBBA.
Comprehensive Compliance and Filing
Claiming bonus depreciation requires meticulous attention to detail to ensure compliance with all IRS regulations. We handle the entire process, ensuring you meet all eligibility criteria and properly file the necessary forms. This includes accurately completing Form 4562, Depreciation and Amortization, to report your bonus depreciation deduction. We also help you maintain the required documentation to support your claims in the event of an audit. By managing the compliance and filing process, we help you avoid common errors and penalties, giving you peace of mind that your business is maximizing its tax benefits legally and efficiently.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
Questions?
Ashley is a tax and business advisory specialist with expertise in tax compliance. She advises clients across various industries, including manufacturing and distribution, on federal tax and multi-state tax matters. Her experience encompasses pass-through entities, corporations, individuals, and nonprofits.