What Is the OBBBA?
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is a comprehensive tax reform package that includes several major changes to depreciation rules. For businesses of all sizes, the two most impactful provisions are the restoration of 100% bonus depreciation and the doubling of the Section 179 deduction limit.
These changes apply retroactively to qualified property acquired and placed in service after January 19, 2025, making them relevant for the entire 2025 tax year.
Key Depreciation Changes
1. 100% Bonus Depreciation Restored
Under the Tax Cuts and Jobs Act (TCJA) of 2017, bonus depreciation was set at 100% for 2018–2022 and then scheduled to phase down:
- 2023: 80%
- 2024: 60%
- 2025: 40% (original schedule)
- 2026: 20%
- 2027: 0%
The OBBBA overrides this phase-down and restores the rate to 100% for qualified property acquired after January 19, 2025. This means businesses can immediately expense the full cost of eligible assets in the year they are placed in service.
2. Section 179 Deduction Doubled (Indexed for Inflation)
| Parameter | Before OBBBA | 2025 (OBBBA) | 2026 (Adjusted) |
|---|---|---|---|
| Maximum Deduction | $1,250,000 | $2,500,000 | $2,560,000 |
| Phase-Out Threshold | $3,130,000 | $4,000,000 | $4,090,000 |
| SUV Limit (Sec. 179) | $30,500 | $31,300 | TBD (indexed) |
| Complete Phase-Out | $4,380,000 | $6,500,000 | $6,650,000 |
The OBBBA Section 179 limits are permanently indexed for inflation. For the 2026 tax year, the IRS has confirmed the deduction limit rises to $2,560,000 and the phase-out threshold increases to $4,090,000 (per IRS Notice 2026-11).
3. Section 280F Vehicle Limits (2025)
The IRS has also released updated depreciation limits for passenger automobiles under Section 280F:
| Year | With Bonus Depreciation | Without Bonus Depreciation |
|---|---|---|
| Year 1 | $20,200 | $12,200 |
| Year 2 | $19,600 | $19,600 |
| Year 3 | $11,800 | $11,800 |
| Year 4+ | $7,060 | $7,060 |
Who Benefits?
Small & Medium Businesses
The doubled Section 179 limit ($2,500,000 for 2025, rising to $2,560,000 for 2026) and raised phase-out threshold ($4,000,000 / $4,090,000) mean more businesses can fully expense their capital purchases. A business buying $3 million in equipment can deduct up to the Section 179 limit and apply bonus depreciation to the remainder — potentially expensing the entire amount in year one.
Real Estate Investors
While buildings themselves still depreciate over 27.5 or 39 years, the restoration of 100% bonus depreciation makes cost segregation studies extremely valuable again. Components reclassified to 5, 7, or 15-year property can be fully expensed in the first year, dramatically improving cash flow.
Vehicle Purchasers
Businesses purchasing vehicles for business use benefit from the restored bonus depreciation, though Section 280F caps still apply for passenger vehicles. SUVs over 6,000 lbs GVWR can deduct up to $31,300 under Section 179.
Strategic Considerations
- Timing matters: The 100% rate applies to property acquired after January 19, 2025. Property acquired before that date follows the original TCJA phase-down schedule.
- Section 179 first: Apply Section 179 before bonus depreciation to maximize flexibility (Section 179 can be elected per asset, while bonus depreciation is all-or-nothing per class).
- NOL planning: Bonus depreciation can create a net operating loss (NOL), which can be carried forward indefinitely. Plan accordingly if you expect lower income years ahead.
- State conformity: Not all states conform to federal bonus depreciation rules. Check your state's position before assuming a full deduction on state returns.
Use Our Calculators
All of our calculators have been updated to reflect the OBBBA changes:
- MACRS Calculator — with 100% bonus depreciation option
- Section 179 Calculator — updated to $2,500,000 limit
- Car Depreciation Calculator — with 2025 Section 280F limits
- Rental Property Calculator — cost segregation with bonus depreciation