For the last several years, 100% bonus depreciation was practically a given for business clients buying equipment, vehicles, or other qualified property. That era is over. The Tax Cuts and Jobs Act (TCJA) built in a scheduled phase-down, and 2025 is the year the number drops to 40% — a meaningful shift that changes how you should be structuring asset acquisition conversations.
Here's everything you need to advise clients confidently on depreciation for tax year 2025.
Under TCJA, the 100% first-year bonus depreciation that applied from 2018 through 2022 began stepping down starting in 2023. Here's the full schedule:
| Tax Year | Bonus Depreciation Rate | Change from Prior Year |
|---|---|---|
| 2022 | 100% | — |
| 2023 | 80% | −20 pts |
| 2024 | 60% | −20 pts |
| 2025 | 40% | −20 pts |
| 2026 | 20% | −20 pts |
| 2027+ | 0% | Fully phased out |
Note: Qualified property placed in service after December 31, 2026 will receive zero bonus depreciation under current law — unless Congress acts. Legislative extension has been discussed but not enacted as of this writing. Plan conservatively.
The 40% rate applies to "qualified property" — which includes most tangible personal property with a MACRS recovery period of 20 years or less, as well as certain other categories:
Real property (buildings, land improvements with 27.5- or 39-year lives) generally does not qualify for bonus depreciation unless it falls under the 15-year QIP category.
With bonus depreciation at 40%, Section 179 becomes a more prominent planning tool for many clients. Here's how they compare for 2025:
| Feature | Bonus Depreciation (2025) | Section 179 (2025) |
|---|---|---|
| First-year deduction rate | 40% | Up to 100% |
| Dollar limit | None | $1,250,000 |
| Phase-out threshold | None | $3,130,000 of qualifying property |
| Can create a loss? | Yes | No — limited to business taxable income |
| Applies to used property? | Yes (if first use by taxpayer) | Yes |
| State conformity | Varies | Varies (many states cap differently) |
For clients whose total asset purchases stay well below the $3.13M phase-out, Section 179 lets them deduct 100% of eligible costs immediately — compared to only 40% via bonus. The tradeoff: Section 179 cannot produce a net operating loss (NOL), so if the client doesn't have enough taxable income to absorb the deduction, the excess carries forward to next year.
Bonus depreciation has no income limitation, which makes it valuable when a client wants to generate or deepen a loss for NOL carryforward purposes. It also applies automatically to all qualifying property placed in service during the year — though clients can elect out on a class-by-class basis if they prefer to spread deductions across years.
Our depreciation calculator handles MACRS, Section 179, and bonus depreciation side by side — so you can compare outcomes instantly.
A client considering a major equipment purchase in early 2026 may be better off placing it in service before December 31, 2025. The difference: 40% bonus now vs. 20% bonus next year — plus full MACRS deductions on the remaining basis either way.
For clients under the $3.13M phase-out, apply Section 179 first to get to 100% on priority assets. Use bonus depreciation as a secondary layer on any remaining qualified assets, or on assets you'd rather not tie up Section 179 capacity on.
Many states — including California, New York, and New Jersey — do not conform to federal bonus depreciation and have their own Section 179 limits. A client who saves $50,000 federally via bonus may owe an additional $5,000–$15,000 in state tax. Always run the state-level analysis.
Cost segregation studies identify components of real property (wiring, flooring, fixtures) that can be reclassified to 5-, 7-, or 15-year MACRS lives — making them eligible for bonus depreciation. For clients with significant real estate purchases, the ROI on a cost seg study often makes sense even at 40%.
The 100% bonus depreciation era is definitively over. At 40%, the decision between bonus depreciation and Section 179 requires analysis rather than defaulting to one or the other. The good news: most clients with moderate asset purchases still have access to powerful first-year deductions — the math just takes a few more minutes now.
Check current figures, build the comparison for your client, and document your recommendation in the file. With the 2026 rate dropping to 20% and sunset in 2027, timing conversations are going to be a recurring feature of client meetings for the next two years.