As the year winds down, many business owners start thinking about their next big purchase: that new piece of equipment, a fleet upgrade, or a renovation they’ve been putting off. This is more than a timing decision. In 2025, changes to bonus depreciation and Section 179 could make those year-end investments more valuable than ever.
The right strategy can help you improve cash flow, lower taxable income, and maximize your return on essential capital purchases. Here’s what you need to know before signing those year-end contracts.
What Changed for 2025: A Quick Overview
2025 brought big shifts to depreciation rules under the One Big Beautiful Bill Act (OBBBA).
Bonus depreciation: back to 100 percent for many purchases. Qualifying property is eligible for 100 percent bonus depreciation if it is acquired and placed in service after January 19, 2025. If the asset was acquired under a binding contract dated before January 20, 2025 and placed in service in 2025, bonus generally follows the pre-OBBBA phasedown: 40 percent. Acquisition is usually the date of a binding written contract; placed in service is when the asset is ready and available for use.
Section 179: higher limits. For tax years beginning after December 31, 2024, the maximum Section 179 deduction is $2.5 million, with a phase-out beginning at $4 million and complete phase-out at $6.5 million. Beginning in 2026, these thresholds index for inflation. The long-standing SUV cap remains in effect: $31,300 for tax years beginning in 2025.
Planning flexibility: transition election. The transition election under the One Big Beautiful Bill Act (OBBBA) regarding bonus depreciation is a special provision that allows taxpayers, for property placed in service in the first taxable year ending after January 19, 2025, to elect a reduced bonus depreciation rate instead of the standard 100% expensing that the OBBBA otherwise makes permanent. Specifically:
- For most qualified property, the taxpayer may elect to substitute a 40% bonus depreciation rate for the 100% rate.
- For certain property described in IRC §168(k)(2)(B) or (C) (which includes certain long production period property and certain aircraft), the taxpayer may elect to substitute a 60% bonus depreciation rate for the 100% rate.
You can also elect out of bonus depreciation by class of property. This flexibility helps manage taxable income and NOLs.
Section 179 vs. Bonus Depreciation: Which Comes First?
At a glance, both provisions let you write off equipment quickly, but they work differently:
| Feature | Section 179 | Bonus Depreciation |
| Deduction limit | $2.5 million (phase-out begins at $4 million) | No dollar limit |
| Eligibility | New or used property | New or used property |
| Income limit | Cannot exceed taxable income | Can create a loss |
| Election | Chosen asset by asset | Automatic unless you opt out |
| State conformity | Widely adopted | Varies by state |
Rule of thumb: Use Section 179 on assets that don’t qualify for bonus depreciation or where state conformity is better. Then apply bonus depreciation to the remaining basis.
For example, if your business purchases both new machinery and a roof improvement, you might use Section 179 on the roof (qualified improvement property, or QIP) and bonus depreciation on the machinery.
Timing Matters: “Acquired” and “Placed in Service”
With the new rules, the words acquired and placed in service can determine whether you receive a 100 percent deduction or a 40 percent one.
- Acquired means the date of a binding written contract to purchase the asset.
- Placed in service means the date the asset is ready and available for use in your business.
If you sign a purchase order before January 20, 2025, that equipment is considered acquired before the 100 percent rule applies, even if you take delivery later in the year. So, waiting a few days—or revisiting contract timing—could make a six-figure difference.
Some businesses may even elect to use the 40 percent rate to manage income and avoid creating large net operating losses (NOLs). This “transition election” allows strategic timing based on your 2025 income outlook.
How Different Industries Can Benefit
Construction: Heavy Equipment and Shop Upgrades
Contractors often rely on expensive machinery—bulldozers, cranes, trucks, and fabrication equipment—that easily qualify for both Section 179 and bonus depreciation. With the 100 percent bonus reinstated, purchasing after January 19, 2025, could yield immediate tax savings.
Example:
A construction firm buys $1.8 million in new machinery on February 10, 2025. Because it’s both acquired and placed in service after January 19, the entire cost qualifies for 100 percent bonus depreciation. If the company finances the purchase, it may generate a larger deduction than its first-year cash outlay—a direct boost to cash flow.
Pro tip: Review state conformity before relying on bonus depreciation. Many states require adjustments or add-backs for state tax purposes.
Manufacturing: Production Lines, Robotics, and Facility Improvements
Manufacturers benefit from both programs, especially when modernizing production lines or adding robotics. Section 179 can also apply to QIP, such as HVAC systems or interior renovations.
Example:
A manufacturer spends $3.9 million—$3.5 million on machinery and $400,000 on a new roof. Section 179 can cover the roof improvements, while bonus depreciation applies to machinery. Because the total purchase stays under the $4 million threshold, the full $2.5 million Section 179 limit remains available.
When operating in multiple states, model both federal and state effects carefully. The federal savings may be diluted if a non-conforming state disallows bonus depreciation.
Restaurants: Kitchen Equipment and Dining Room Upgrades
Restaurants regularly purchase short-lived assets—refrigeration, ovens, POS systems, and furnishings—all perfect for accelerated expensing. Bonus depreciation and Section 179 can help offset high upfront costs of remodeling or rebranding locations.
Example:
A restaurant group spends $1 million on new kitchen equipment and $300,000 on QIP in fall 2025. Both acquisitions occur after January 19, qualifying for 100 percent bonus depreciation. To smooth taxable income, the business could elect to expense QIP under Section 179 and take bonus depreciation on the rest.
Step-by-Step Year-End Equipment Planning Checklist
- Review pending purchases: Identify which assets already have binding contracts and which can still be acquired post–January 19, 2025.
- Model federal and state effects: Compare Section 179, bonus depreciation, and regular MACRS treatment.
- Consider the transition election: Using the 40 percent rate may help stabilize income.
- Document placed-in-service dates: Keep invoices, delivery receipts, and installation records.
- Mind vehicle limits: Remember the $31,300 SUV cap and the “luxury auto” depreciation limits.
- Coordinate with financing: Use accelerated deductions while preserving cash for operations.
Cash-Flow Impact: The Power of Accelerated Deductions
Example A – Construction Company
A contractor purchases a $1.2 million excavator using equipment financing. With 100 percent bonus depreciation and a 35 percent tax rate, the immediate deduction saves $420,000 in taxes. First-year loan payments total about $200,000, producing a net cash-flow gain of $220,000.
Example B – Manufacturer
A manufacturer with $600,000 in taxable income buys $2.6 million in equipment. Section 179 deductions are limited by income, but bonus depreciation covers the remainder, potentially generating an NOL that carries forward to offset future income.
Common Mistakes to Avoid
- Signing contracts too early. Binding agreements before January 20, 2025, can reduce your bonus deduction to 40 percent.
- Exceeding Section 179 limits. Once total purchases exceed $4 million, the deduction begins to phase out.
- Ignoring state conformity. Many states disallow bonus depreciation and require add-backs.
- Skipping documentation. You must prove when assets were placed in service to substantiate the deduction.
Plan Now for Maximum Savings
The expanded Section 179 limits and restored 100 percent bonus depreciation make 2025 a standout year for capital investment. But taking advantage requires careful timing and coordination between your purchasing, financing, and tax planning teams.
At Capossela Cohen, we help businesses design practical, tax-efficient equipment strategies that balance immediate cash-flow gains with long-term growth. If you’re considering year-end purchases, now is the time to plan.
Let’s talk about how these new provisions can work for you.
FAQs
Is bonus depreciation 100 percent in 2025?
Yes, for property acquired and placed in service after January 19, 2025. Assets acquired earlier generally receive 40 percent bonus depreciation.
What is the Section 179 limit for 2025?
The maximum deduction is $2.5 million, with a phase-out beginning at $4 million in total qualifying purchases.
Can I choose to take 40 percent instead of 100 percent bonus depreciation?
Yes. The new law allows a transition election to use 40 percent for certain assets in 2025, depending on your income needs.
Do used assets qualify?
Yes, as long as you didn’t previously use the asset and acquired it through an arm’s-length transaction.
How do states treat these rules?
Many states conform to Section 179 but not to bonus depreciation. Always check your state’s current rules before finalizing your plan.