The One, Big, Beautiful Bill Act (OB3) passed July 4th, 2025, created some of the most dramatic changes to bonus depreciation and §179 Expensing that we’ve seen in almost a decade. The bonus depreciation rate was reset to 100% and the §179 expensing limitations were effectively doubled under the new legislation. However, these new limitations bring some interesting caveats that will create issues for tax professionals preparing returns and doing tax planning for their clients.
Bonus Depreciation
While the change under OB3 reinstituted the 100% applicable percentage for all future years (no phaseout), that change is only applicable to property that was both:
- Acquired after January 19, 2025, and
- Placed in service after January 19, 2025.
This acquired date may create unforeseen complications for taxpayers planning to take advantage of 100% bonus depreciation. For instance, a tax preparer reached out to us recently regarding an interesting case for their client that perfectly outlines the changes related to bonus depreciation.
Example
The taxpayer purchased a home in 2020 that they used as their primary residence. Late in 2025, they planned to list the property on Airbnb with an average rental stay of 7 days or less, and planned to materially participate in the activity (which makes the rental income and loss nonpassive). For more information on this tax strategy, see our short-term rental webinar available here.
The problem the taxpayer faces is that they wanted to do a cost segregation study on the property and were concerned about what bonus depreciation rate would apply to the segregated 5, 7, and 15-year assets. Generally, the applicable percentage for bonus depreciation is determined by the year placed in service. Unfortunately, the property was acquired on or before January 19, 2025, so the new 100% applicable percentage does NOT apply.
Because property acquired on or before January 19, 2025, is not eligible for the changes under OB3, the old rules for TCJA apply. While the property was acquired in 2020, when the applicable percentage was 100%, it was not placed into service until 2025. Under the TCJA rules, the applicable percentage for bonus will be 40%. If the same taxpayer waited until 2026 to place the property into service, the bonus depreciation rate would only be 20%. If they had waited until 2027 or some future year, the applicable percentage would be 0%.
The Solution: §179 Expensing
The saving grace for taxpayers who find themselves in a situation where property was acquired on or before January 19, 2025, is §179 expensing and the enhancements made by OB3. There are annual limitations on the amount of §179 expensing a taxpayer may claim, and there are phaseouts based on the amount of property that the taxpayer placed in service during the year. Allowable §179 expensing was increased to $2,500,000 for 2025, approximately double what it was for 2024, and indexed for inflation for all future years. The phaseout threshold for §179 expensing was also increased to $4,000,000.
The increase to §179 expensing applies to all qualifying property placed in service in 2025 and for all future taxable years, regardless of the date acquired. This offers a great alternative for taxpayers looking to accelerate depreciation.
§179 is not a cure-all, however. Deductions for §179 are limited to taxable income from trades or businesses carried out during the year. This limitation applies to pass-through entities as well, so while §179 offers a great alternative for the taxpayer in the example above, it will not work for everyone.
Conclusion
The changes to bonus depreciation will require tax professionals to get additional information from clients regarding the acquisition of new assets placed into service. Practitioners should take care for at least the next few years to ask the client how an asset was acquired. Keep in mind that the addition of a new asset to a client’s balance sheet may not necessarily indicate that the business purchased the asset (as the taxpayer may have acquired the property on or before January 19, 2025, and contributed it to the business).
To learn more about the depreciation changes and other issues related to OB3, register for our Update Seminar taking place in December and January across the state of California, Reno, and Las Vegas.