For four years, buying equipment came with a tax asterisk. Bonus depreciation was phasing out—80% in 2023, 60% in 2024, 40% in 2025—and every capital purchase meant spreading the deduction across future years. The One Big Beautiful Bill Act (OBBBA) reversed that. 100% first-year bonus depreciation is back, and this time it is permanent, for qualifying property acquired and placed in service after January 19, 2025.
That is a genuinely good change for any business that buys equipment, vehicles, computers, or furniture. But “deduct it all now” is not automatically the right answer, and the businesses that come out ahead are the ones that decide in July, not the ones that find out from their accountant in April.
What actually changed
Under OBBBA, eligible business property placed in service after January 19, 2025 qualifies for 100% first-year expensing again. The full cost of a qualifying asset can be deducted in the year it is put to use, rather than depreciated over five, seven, or more years. Unlike the pre-2023 version, this is not scheduled to phase back out—so it is now a permanent part of how you plan capital spending.
Section 179 expensing was expanded alongside it. For 2025 the deduction limit rose to $2.5 million with a $4 million phase-out threshold, both indexed for inflation going forward. In practice, most small and mid-sized businesses now have more than enough room to fully expense their equipment purchases in the year they make them.
Why “deduct it all now” isn't automatic
A 100% deduction feels like a no-brainer, but taxpayers are explicitly allowed to elect out of bonus depreciation and recover the asset's cost over its normal MACRS life instead. There are real reasons a business chooses to:
- You expect higher income later. A deduction is worth more against a higher marginal rate. If this year is lean and next year looks strong, spreading the deduction can be worth more in total tax saved.
- You want predictable, smoother taxable income. Expensing a large asset all at once can swing taxable income sharply, which complicates estimated payments and state filings.
- State conformity is messy. Many states don't follow federal bonus depreciation. Taking the full federal deduction can create a book-to-state gap you have to track for years.
- Loan covenants or valuation matter. If you are raising, borrowing, or preparing to sell, a distorted single-year profit figure can work against you even when the tax outcome looks good in isolation.
The right answer is a projection, not a reflex. You need this year's expected income and next year's before you can say whether taking 100% now beats spreading it out.
The mid-year advantage
This is why July is the moment. With six months of actuals in hand and six months of visibility ahead, you can model the decision with real numbers instead of guessing in December. A useful mid-year pass looks like this:
- Project full-year taxable income from your H1 actuals plus a realistic H2 forecast.
- List the capital purchases you are actually going to make in the back half of the year—equipment, hardware, vehicles, buildout.
- Model both paths: full expensing now versus electing out, across this year and next.
- Check the placed-in-service date. The deduction hinges on when the asset is put to use, not when it is ordered or paid for. An asset that slips to January is a next-year deduction.
Done in July, this turns into a plan: buy the things that make sense before year-end, sequence the placed-in-service dates deliberately, and know in advance which assets you will elect out on.
While you're at it: R&D expensing came back too
OBBBA also restored immediate deduction of domestic research and experimental costs, reversing the five-year amortization that had squeezed a lot of product and engineering-heavy businesses since 2022. Most taxpayers can accelerate their remaining unamortized R&D costs, either in one year or over the next two, and certain eligible small businesses can retroactively apply full expensing to 2022, 2023, and 2024—which can mean amending prior returns for a refund.
If you capitalized R&D over the last few years, the mid-year review is the time to quantify what a catch-up or amendment is worth before filing decisions get made under time pressure.
What to do this quarter
- Build a full-year income projection from H1 actuals.
- Inventory planned H2 capital purchases and their expected placed-in-service dates.
- Model 100% expensing vs. electing out for the significant assets—this year and next.
- Flag any state non-conformity so the book-to-state gap is tracked from day one.
- Quantify any R&D catch-up or 2022–2024 amendment opportunity.
None of this requires waiting for tax season. The businesses that get the most out of permanent bonus depreciation are the ones that treat it as a planning tool through the year, not a line item they discover after the year is over.
If you want a clean mid-year projection and a documented depreciation plan—one your CPA can act on before year-end—that is exactly the kind of work our accounting and controller teams handle month to month.