The One Big Beautiful Bill Act (OB3) makes 100% bonus depreciation under Section 168(k) permanent for most qualified property acquired or placed in service after January 19, 2025.
This allows taxpayers to deduct the full cost of eligible property improvements in the first year, significantly improving cash flow and enabling faster reinvestment.
The provision applies to most tangible property with a recovery period of 20 years or less, including used property, provided certain requirements are met.
New: Bonus Depreciation For Manufacturing and Production Facilities
OB3 expands bonus depreciation to include qualified production property (QPP). This category covers certain nonresidential real estate—such as buildings and facilities—used as an integral part of qualified production activities like manufacturing, processing, or refining within the United States.
Previously, these assets were typically depreciated over multiple years. Under Section 168(n), businesses can now deduct the full cost of qualifying property in the year it is placed in service.
To qualify, construction must begin after January 19, 2025, and before January 1, 2029, with the property placed in service before January 1, 2031.
Opportunities For Tenants
Accelerated depreciation benefits under OB3 are not limited to property owners. Many interior improvements qualify as Qualified Improvement Property (QIP), making them fully deductible in the year they are placed in service. Tenants may also expense eligible equipment, furniture, and certain building systems under Section 179, depending on lease structure.
Cost Segregation: Unlocking Additional Value
While commercial and residential buildings are typically depreciated over 39 and 27.5 years, respectively, many components within those properties qualify for shorter recovery periods and may be eligible for immediate expensing.
Examples include:
- Fixtures
- Interior finishes
- Specialized equipment
- Certain mechanical systems
- Land improvements
- Septic systems
These assets often fall into 5-, 7-, or 15-year depreciation categories under MACRS and may qualify for 100% bonus depreciation.
A cost segregation study identifies and reclassifies these components, allowing property owners to accelerate deductions and improve first-year cash flow.
For best results, the study should be completed in the same tax year the property is placed in service. However, even if completed later, taxpayers can still benefit by applying appropriate MACRS schedules with the help of a qualified tax professional.
When To Opt Out Of Bonus Depreciation
Although 100% bonus depreciation is applied by default, it may not always be the optimal strategy.
Taxpayers in a net operating loss (NOL) position, or those expecting to be in higher tax brackets in future years, may benefit from spreading deductions over time instead.
A knowledgeable tax advisor can evaluate your specific situation, ownership structure, and long-term goals to determine the most effective approach. They can also model the impact of bonus depreciation and Section 179 elections to help manage future tax liabilities and navigate federal and state differences.
Source: SFBJ
