Posted in Blog
By Tony Liu, Founder and Principal Business Trial Attorney
In Summary:
In 2025, bonus depreciation is back at 100 percent, allowing business owners to fully expense qualified purchases like equipment, software, and improvements in the year they’re placed in service. Alongside the return of immediate R&D expensing, this creates a narrow but powerful opportunity to slash tax bills, improve cash flow, and reinvest in growth. This article walks through what’s eligible, how to avoid costly missteps, and why waiting could mean missing out altogether.
The Tax Advantage Your Competitors Might Miss
While many business owners are still reeling from tightened credit markets and interest rate whiplash, Congress quietly handed out a gift in the form of restored 100 percent bonus depreciation. For companies needing new equipment, tech upgrades, or facility improvements, this provision allows them to write off the full cost of qualified assets in the year they’re placed in service, not over five, seven, or fifteen years.
That means better cash flow, lower taxes, and faster reinvestment into operations. But the clock is ticking, and competitors who act first will gain the edge.
What Is Bonus Depreciation and Why 100 Percent Matters Now
The Basics of Bonus Depreciation
Bonus depreciation is a tax incentive that allows businesses to immediately deduct a large portion, or all, of the cost of certain assets in the same year they are purchased and put into use. Under typical depreciation schedules, deductions are spread over the years. Bonus depreciation compresses that benefit into one.
With 100 percent bonus depreciation, businesses can now deduct 100% of the purchase price of eligible equipment, machinery, software, and improvements, as long as the property is placed in service in 2025.
Why It Was Gone and Why It’s Back
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced 100% bonus depreciation through 2022. In 2023 and 2024, that percentage dropped to 80% and 60%, respectively.
Now, the full deduction has been temporarily restored under a new provision, giving businesses a second chance to maximize tax savings. However, this window may close quickly, and the phase-out could resume as early as next year. That makes 2025 a rare, limited-time opportunity to capitalize on the full benefit.
Who Qualifies and What Assets Are Eligible?
Qualified Property Under Bonus Depreciation
To leverage bonus depreciation at 100 percent, the following types of property generally qualify:
- Tangible property used in business (e.g., machinery, equipment, tools)
- Technology hardware (e.g., servers, computers, devices)
- Software purchased and used for business
- Qualified Improvement Property (QIP), such as interior improvements to nonresidential buildings
- Used property, as long as it’s “new to you” and not acquired from a related party
Avoiding Eligibility Mistakes
Missteps can be costly. Common mistakes include:
- Purchasing property from a related entity (which voids eligibility)
- Placing the asset into service after the tax year (intent to use isn’t enough)
- Failing to document property acquisition and use properly
- Applying bonus depreciation when Section 179 limitations would be more favorable
IRS Publication 946 details these technical nuances. A misclassified purchase could cost thousands in lost deductions.
How to Strategically Capitalize Before the Window Closes
Equipment and Technology Upgrades
If upgrades were on the horizon for 2026 or later, moving up the timeline could save significantly. Writing off the full cost in 2025 improves working capital and potentially shields income from higher tax brackets.
Lease vs. Buy in 2025
Here’s where many entrepreneurs miss a strategic tax opportunity:
- Buying allows full expensing via bonus depreciation
- Leasing may reduce upfront costs, but it forfeits the depreciation benefit
Key questions to ask:
- Is the asset for long-term or short-term use?
- Do you want to maintain ownership?
- Is your income high enough this year to benefit fully from the deduction?
R&D Expensing Is Also Back
The same legislation that restored bonus depreciation also allows immediate expensing of R&D costs, reversing prior rules that forced amortization over five years.
Businesses in technology, software, biotech, and advanced manufacturing stand to gain massively. Combining R&D expensing with bonus depreciation creates a powerful double-deduction strategy.
Real-World Applications: What Smart Businesses Are Doing Now
- Commercial Developers: Replacing HVAC systems and lighting under QIP, writing off 100%
- Tech Firms: Expanding server capacity, upgrading routers and laptops, instantly deductible
- Medical Practices: Installing new imaging equipment before year-end to lock in tax benefits
- Construction Companies: Buying used heavy equipment to avoid leasing costs, and deducting 100%
These aren’t abstract concepts. These are active strategies business leaders are using to protect profits.
Pitfalls to Avoid
Waiting Too Long
The deduction only applies if the asset is placed in service before year-end. Delays in shipping, construction, or installation can ruin eligibility. Don’t wait until Q4 to act.
Using the Deduction to Justify Bad Decisions
Spending $100K to save $35K in taxes is still spending $65K. Make sure purchases support business objectives first.
Confusing Section 179 with Bonus Depreciation
While both offer accelerated deductions, they behave differently:
- Section 179 has caps and income limits
- Bonus depreciation does not
A professional tax advisor can help structure both correctly to avoid missed opportunities.
Frequently Asked Questions
1. What is 100 percent bonus depreciation in 2025?
It allows businesses to deduct the entire cost of qualifying property like machinery, software, and improvements in the same tax year the asset is placed in service, with no phase-down until potentially 2026.
2. Does bonus depreciation apply to used equipment?
Yes. As long as the used equipment is “new to your business” and not acquired from a related party, it qualifies for the full 100 percent deduction.
3. Should I lease or buy equipment in 2025 for tax purposes?
Buying allows you to claim bonus depreciation; leasing does not. However, if cash flow is a concern or the asset will be used only temporarily, leasing may still be preferable. Consider your long-term needs and tax situation.
4. Can I deduct R&D costs immediately again?
Yes. The 2025 changes restored immediate expensing of R&D costs, eliminating the prior five-year amortization rule. This offers significant savings for innovation-focused businesses.
Missing this opportunity could cost more than just tax dollars—it could erode the financial edge you’ve worked hard to build. When competitors reduce their tax bills and reinvest savings into technology, infrastructure, or new talent, businesses that wait will be left behind.
This is about more than deductions. It’s about maintaining control, maximizing growth, and ensuring peace of mind that your business isn’t leaking money where it shouldn’t.
Don’t wait until the final quarter. Book a strategic consultation now to ensure your purchases, deductions, and timing are structured to work in your favor, before the window closes.
