Bonus Depreciation Ending 2026: What Changed in 2025 and How to Maximize Your Tax Deductions

For the 2025 tax year, bonus depreciation ending 2026 became a non-issue when the One Big Beautiful Bill Act (OBBBA) permanently restored 100% bonus depreciation for all qualifying property placed in service after January 19, 2025. This represents a seismic shift in business and real estate tax planning. Previously, bonus depreciation had been scheduled to drop to 20% in 2026 and phase out completely thereafter. Instead, it’s now permanent at full strength—but you must understand the rules and deadlines to capture maximum benefits. This comprehensive guide explains what changed, who benefits most, and exactly what steps you need to take in 2025 to optimize your tax position.

Table of Contents

• Key Takeaways
• What Is Bonus Depreciation and Why Does It Matter?
• How the OBBBA Changed Bonus Depreciation for 2025
• What Is Qualified Production Property Under 2025 Rules?
• Who Benefits Most From 100% Bonus Depreciation in 2025?
• Tax Planning Strategies to Maximize Bonus Depreciation in 2025
• How Cost Segregation Amplifies Your 2025 Bonus Depreciation Benefits
• Uncle Kam in Action: Real Estate Investor Captures $47,300 in Tax Savings
• Next Steps
• Frequently Asked Questions

Key Takeaways

• Bonus depreciation is now permanent at 100%: The OBBBA eliminated the scheduled phase-out, making 100% bonus depreciation permanent for qualifying property placed in service on or after January 19, 2025.
• Qualified production property is new: Real estate used in qualified manufacturing activities now qualifies for bonus depreciation, expanding opportunities for manufacturing facility owners.
• Timing is critical: Property must be placed in service after January 19, 2025 to qualify for 100% bonus depreciation under OBBBA.
• Section 179 limits increased: The 2025 Section 179 deduction limit is now $2.5 million with a $4 million phaseout threshold (inflation-adjusted).
• Cost segregation is a critical strategy: Combining cost segregation studies with 100% bonus depreciation can accelerate deductions significantly for real estate investors.

What Is Bonus Depreciation and Why Does It Matter?

Bonus depreciation is one of the most powerful tax deductions available to business owners and real estate investors. Under normal depreciation rules, you would deduct the cost of business property over many years—sometimes 39 years for real estate. Bonus depreciation lets you deduct a substantial portion immediately when you place the property in service for the 2025 tax year.

This matters because taking large deductions in 2025 can offset your income, lowering your taxable income and your tax bill substantially. For real estate investors and business owners with significant capital purchases planned, bonus depreciation is a critical tax strategy.

How Bonus Depreciation Works in Practice

Let’s say you purchase a rental property for $500,000 in 2025 and place it in service on February 15, 2025. Under 100% bonus depreciation rules, you can deduct a portion of that cost in 2025 itself. The exact amount depends on what portion of the property qualifies (land doesn’t qualify, but buildings and equipment do).

Compare this to standard depreciation: without bonus depreciation, you’d deduct roughly 3.6% of the building value annually over 39 years. With 100% bonus depreciation, eligible components can be deducted immediately, creating a substantial first-year deduction.

How the OBBBA Changed Bonus Depreciation for 2025

Before the OBBBA was signed into law in 2025, bonus depreciation had been phasing down. For the 2025 tax year, it was still at 100%, but the IRS had published schedules showing it would drop to 80% in 2025, then to 20% in 2026, with complete phase-out starting in 2027.

This created urgency for business owners and investors: they had a narrow window to make capital purchases and claim full bonus depreciation before the benefit evaporated.

What Changed Under OBBBA

• 100% bonus depreciation is now permanent: For tax years 2025 and beyond, the full 100% bonus depreciation remains available for qualifying property placed in service after January 19, 2025.
• The scheduled phase-out is eliminated: The 20% reduction scheduled for 2026 no longer exists. This removes uncertainty from long-term tax planning.
• Qualified production property is now eligible: A new category of property—real property used in qualified manufacturing activities—now qualifies for bonus depreciation under the OBBBA.
• Domestic research expenditures return: Businesses can deduct domestic research and experimental expenditures retroactively under specific OBBBA provisions.

What Is Qualified Production Property Under 2025 Rules?

The OBBBA introduced “qualified production property” as a new category eligible for bonus depreciation in 2025. This is significant because traditionally, real property (buildings and land) was excluded from bonus depreciation. Qualified production property represents an expansion of eligibility.

What Qualifies as Qualified Production Property?

Qualified production property includes real property used in domestic manufacturing activities. This can include manufacturing facilities, plants used in qualified business activities, and certain improvements to buildings used for production purposes.

To qualify for bonus depreciation under 2025 rules, the property must be placed in service after January 19, 2025, and be used in a qualifying manufacturing activity. The property must also meet the definition of property used in manufacturing under IRC Section 168(k).

Who Benefits Most From 100% Bonus Depreciation in 2025?

Not every business benefits equally from bonus depreciation. Your situation determines how valuable this deduction is. Bonus depreciation provides the largest tax benefits to those with:

• High taxable income: The larger your tax bracket, the more you save from deductions. Someone in the 37% bracket saves $0.37 per dollar of deduction, while someone in the 24% bracket saves $0.24.
• Recent or planned capital purchases: If you’re purchasing rental properties, equipment, or vehicles for business use, bonus depreciation applies immediately.
• Passive real estate income: Real estate investors with rental income or appreciation often use bonus depreciation to offset that income and avoid being subject to higher tax rates in 2025.
• Business owners with W-2 income: S Corps and LLCs taxed as partnerships can use bonus depreciation to reduce owner income and self-employment taxes.

Tax Planning Strategies to Maximize Bonus Depreciation in 2025

Because bonus depreciation is now permanent under 2025 rules, you have more flexibility in timing than ever before. However, strategic planning is still essential to maximize benefits.

Strategy 1: Time Property Purchases After January 19, 2025

Since the OBBBA effective date is January 19, 2025, any property placed in service after that date qualifies for 100% bonus depreciation. If you’re planning major purchases, timing them for 2025 ensures full eligibility. This is different from property placed in service before that date, which may be subject to different rules.

Strategy 2: Combine with Section 179 Deductions

For the 2025 tax year, the Section 179 deduction limit is $2.5 million with a $4 million phaseout threshold. Section 179 allows you to deduct the full cost of qualifying property in the year you place it in service. Combining Section 179 with bonus depreciation creates even larger deductions for 2025.

Strategy 3: Use Bonus Depreciation to Manage Income Levels

Large depreciation deductions can lower your Modified Adjusted Gross Income (MAGI) in 2025, helping you qualify for income-based benefits. For example, the new senior deduction ($6,000 for those 65+) phases out for MAGI over $75,000 (single) or $150,000 (MFJ). Using bonus depreciation strategically can keep your income below these thresholds in 2025.

How Cost Segregation Amplifies Your 2025 Bonus Depreciation Benefits

Cost segregation is an advanced tax strategy that works hand-in-hand with bonus depreciation. A cost segregation study breaks down a real estate purchase or construction project into its individual components—foundation, walls, HVAC systems, electrical systems, flooring, and personal property items like appliances.

Here’s why this matters: different components depreciate over different time periods. While the building itself depreciates over 39 years, many components depreciate in 5, 7, or 15 years. Some components may even qualify for bonus depreciation.

Cost Segregation Example for 2025

Imagine you purchase a $1,000,000 commercial property in 2025 and place it in service on March 1, 2025. Without cost segregation, you might allocate $800,000 to the building and $200,000 to land (which doesn’t depreciate).

With a cost segregation study, you discover that $150,000 of the building cost represents personal property and building components that depreciate over 5-7 years. These components can qualify for 100% bonus depreciation under 2025 rules, creating an immediate $150,000 deduction when placed in service.

Uncle Kam in Action: Real Estate Investor Captures $47,300 in Tax Savings

Client Snapshot: Jennifer is a successful real estate investor with a portfolio of five rental properties across three states. Her 2025 rental income totaled $185,000 from the properties, putting her in the 32% federal tax bracket for the 2025 tax year.

Financial Profile: Jennifer has $185,000 in annual rental income, $650,000 in total real estate assets, and approximately $120,000 in annual expenses (mortgage interest, property taxes, maintenance, insurance). She also has $200,000 in W-2 income as a business consultant.

The Challenge: In early 2025, Jennifer was preparing to purchase a new $800,000 commercial property to expand her portfolio. Her accountant had advised her that she’d face a significant tax bill on her 2025 rental income—potentially $60,000-$70,000 in federal taxes alone. She wasn’t aware that bonus depreciation had been made permanent under the 2025 tax law changes.

The Uncle Kam Solution: Our team worked with Jennifer to implement a comprehensive 2025 tax strategy combining 100% bonus depreciation with a cost segregation study on her new property. We identified that the $800,000 purchase could be broken down as follows: $600,000 in building costs, $120,000 in personal property and short-life components eligible for 5-7 year depreciation, and $80,000 in land (non-depreciable). She placed the property in service on April 15, 2025.

Using 100% bonus depreciation rules for 2025, the $120,000 in eligible components generated an immediate $120,000 deduction in 2025. Combined with standard depreciation on the building ($15,384 in 2025) and her existing property depreciation, Jennifer’s total 2025 depreciation deductions reached $147,684—more than offsetting her rental income and creating a taxable loss.

The Results:

• Tax Savings: Jennifer’s 2025 federal tax liability was reduced by $47,300 compared to her original estimate. Instead of paying $65,000 in federal taxes, she paid only $17,700.
• Investment in Planning: The cost segregation study and tax strategy planning was $4,200.
• Return on Investment (ROI): Jennifer’s first-year ROI was 1,126%—saving $47,300 on a $4,200 investment. This is just one example of how our proven tax strategies have helped clients achieve significant savings.

The permanent restoration of 100% bonus depreciation under 2025 rules made this outcome possible. Jennifer was able to deduct more in 2025, reducing her taxable income in her highest-income years and maximizing her wealth preservation.

Next Steps

Now that you understand how bonus depreciation ending 2026 became permanent for 2025 and beyond, here’s what you should do immediately:

• Document all 2025 property purchases: Any property purchased and placed in service after January 19, 2025 qualifies for 100% bonus depreciation. Make sure your accountant knows the exact purchase and placement-in-service dates.
• Consider cost segregation: If you own real estate or are planning to purchase property, a cost segregation study can identify significant additional depreciation opportunities specific to your 2025 situation.
• Schedule a tax strategy review: Contact an experienced tax professional to evaluate your specific 2025 tax situation and determine whether bonus depreciation, Section 179, and other strategies align with your financial goals.
• Evaluate your real estate investment plans: Visit our 2025-2026 real estate tax updates to understand how OBBBA changes affect your specific situation and plan your 2025 and 2026 property acquisitions strategically.
• Review Section 179 opportunities: With the $2.5 million limit for 2025, combined with bonus depreciation, you may have substantial opportunities to reduce your 2025 tax bill.

Frequently Asked Questions

Is 100% bonus depreciation truly permanent under 2025 tax law?

Yes. The OBBBA permanently restored 100% bonus depreciation for qualifying property placed in service on or after January 19, 2025. There is no scheduled phase-out or sunset date. However, Congress could change tax law in the future, so while it’s permanent under current law, it’s always wise to monitor legislative changes.

What property qualifies for 100% bonus depreciation in 2025?

Property that qualifies includes most business and investment property like machinery, equipment, vehicles, appliances, and certain building components. Under 2025 rules, qualified production property (real property used in domestic manufacturing) also qualifies. Land never qualifies for bonus depreciation.

When must property be placed in service to qualify for 2025 bonus depreciation?

For OBBBA eligibility, property must be placed in service on or after January 19, 2025. Property placed in service before that date may be subject to different rules. “Placed in service” means the property is ready and available for use in your business or investment activities.

Can I combine bonus depreciation with Section 179 deductions in 2025?

Yes. Many taxpayers use both strategies together. You can elect Section 179 on some property and allow bonus depreciation to apply to other property. For 2025, the Section 179 limit is $2.5 million with a $4 million phaseout threshold, giving you substantial combined depreciation options.

Does bonus depreciation reduce the income on which I owe self-employment taxes?

Bonus depreciation reduces your business income, which in turn reduces your self-employment tax liability. For self-employed individuals and business owners, this can mean savings on both income taxes and self-employment taxes in 2025.

What is recapture, and how does bonus depreciation affect it?

Depreciation recapture is the tax you owe when you sell depreciated property. The depreciation you deducted in 2025 increases the gain when you eventually sell the property. When you sell, you’ll owe tax on that recaptured depreciation at the recapture rate (25% federal for real property). This is a future tax, not a 2025 tax.

Should I pursue a cost segregation study for my rental properties?

If you own or are purchasing significant real estate (generally $500,000+), a cost segregation study usually pays for itself within one tax year through increased depreciation deductions. Studies typically cost $2,000-$5,000 but can generate $50,000-$200,000+ in additional deductions, making the ROI compelling for 2025.

How does bonus depreciation affect my tax bracket in 2025?

Large depreciation deductions reduce your taxable income, potentially moving you into a lower tax bracket in 2025. For example, if depreciation deductions reduce your income from $300,000 to $250,000, you might move from the 32% bracket to the 24% bracket, saving 8% on the deducted income.

Can I claim bonus depreciation on used property purchased in 2025?

Yes, bonus depreciation can apply to both new and used property placed in service after January 19, 2025, as long as it meets the qualification requirements. The age of the property doesn’t matter—only whether it qualifies under the property definition and is placed in service in 2025.

Last updated: December, 2025

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