What was federal bonus depreciation in 2025?

Federal bonus depreciation in 2025 is a split-year answer: the rate was 40% for qualified property placed in service between January 1 and January 19, 2025, and 100% for property acquired and placed in service on or after January 20, 2025. The increase to 100% resulted from the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 (Public Law 119-21), which permanently restored full first-year expensing under IRC §168(k). The cut-off date — and the distinction between acquired and placed in service, is the defining planning issue for tax year 2025 returns.

1. Background: The TCJA Phase-Down Before the OBBBA

The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily established 100% bonus depreciation for qualified property placed in service after September 27, 2017, through the end of 2022. Beginning in 2023, the TCJA scheduled a 20-percentage-point annual phase-down:

2. The OBBBA Restoration - Effective Date and Acquisition Rule

The OBBBA permanently restored 100% bonus depreciation effective for qualified property acquired after January 19, 2025. The acquisition date — not just the placed-in-service date — is critical:

• Property acquired AND placed in service after January 19, 2025: eligible for 100% bonus depreciation
• Property acquired on or before January 19, 2025 (i.e., acquired under a binding written contract signed before January 20, 2025): remains subject to the 40% TCJA phase-down rate, even if placed in service later in 2025 or in 2026
• Property placed in service between January 1 and January 19, 2025: eligible for the TCJA 40% rate regardless of when acquired

3. What Qualifies for 100% Bonus Depreciation Under the OBBBA

Qualified property eligible for the restored 100% bonus depreciation includes:

• Tangible MACRS personal property with a recovery period of 20 years or less — e.g., equipment, machinery, vehicles, computers, office furniture
• Qualified improvement property (QIP) — interior improvements to nonresidential buildings, which has a 15-year MACRS recovery period
• Certain computer software depreciable under §167
• Qualified film, television, and live theatrical productions
• Qualified sound recording productions — newly added by the OBBBA, recording must commence in a taxable year ending after July 4, 2025
• Eligible used property — provided the property was not previously used by the taxpayer, was acquired in an arm's-length purchase transaction, and meets the five-year lookback rule for prior use

Real property with a recovery period greater than 20 years (residential rental at 27.5 years, commercial at 39 years) generally does NOT qualify for standard bonus depreciation, with one significant exception noted below.

4. New Category: Qualified Production Property (QPP)

The OBBBA introduced a new temporary 100% deduction for qualified production property (QPP) — a category of real estate used in U.S. manufacturing and production activities. To qualify:

• The property must be used as an integral part of a qualified production activity in the United States
• Construction must have begun after January 19, 2025, and before January 1, 2029
• The property must be placed in service before January 1, 2031
• Leased property does not qualify; portions of buildings used for non-production purposes (offices, R&D, sales) are excluded

QPP expensing is a significant incentive for U.S. manufacturers and producers. Combined with 100% bonus depreciation on equipment, the full investment in a qualifying production facility (other than land) may be immediately deductible in the year placed in service.

5. Section 179 Expensing vs. Bonus Depreciation in 2025

The OBBBA also enhanced Section 179 expensing for tax years beginning after December 31, 2024. The Section 179 deduction limit increased to $2,500,000 with a phase-out beginning at $4,000,000 in total property placed in service. Key differences between the two approaches in 2025:

• Section 179 is limited by taxable income — it cannot create a net operating loss. Bonus depreciation has no taxable income limitation
• Section 179 applies based on placed-in-service date only; the acquisition date cutoff that limits bonus depreciation does not apply to Section 179
• Section 179 is more widely conformed to at the state level than bonus depreciation — beneficial in states that decouple from federal bonus depreciation rules

6. Available Elections for the First Year Ending After January 19, 2025

For the first taxable year ending after January 19, 2025 (which for calendar-year taxpayers is the 2025 tax year), the OBBBA and IRS Notice 2026-11 permit taxpayers to elect a reduced bonus rate instead of 100%:

• 40% bonus depreciation (60% for long-production-period property and certain aircraft) may be elected as an alternative to 100% for this transition year
• This election is made on a class-of-property basis and is irrevocable
• Taxpayers may also elect to treat components of larger self-constructed property as acquired separately — potentially enabling 100% bonus for components acquired after January 19, 2025, even if the larger project started earlier

7. State Conformity

Federal bonus depreciation enhancements do not automatically apply at the state level. Many states decouple from federal §168(k) bonus depreciation entirely or apply different rules. States including California, New York, Illinois, New Jersey, and others require a depreciation addition modification on the state return, effectively eliminating or reducing the bonus depreciation benefit for state income tax purposes. Verify your state's conformity before assuming federal and state depreciation deductions are identical.

Related Questions

• What Is the Depreciation Schedule for Computers Used for Business?
• What is qualified improvement property QIP?
• Can Section 179 limitations be carried forward, and if so, how does the carryover work?

Sources:

One Big Beautiful Bill Act, P.L. 119-21 (July 4, 2025) - IRC §168(k) amendment

IRS Notice 2026-11 - Interim Guidance on Additional First Year Depreciation under §168(k)

IRS Newsroom - Treasury, IRS Issue Guidance on OBBBA Bonus Depreciation

IRS - One Big Beautiful Bill Act Tax Provisions Overview

IRC §168(k) - Additional First Year Depreciation

IRC §179 - Election to Expense Certain Depreciable Business Assets

IRS Publication 946 - How To Depreciate Property