The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, introduces several favorable updates to fixed asset provisions. Key changes include the permanent reinstatement of 100% bonus depreciation, increased Section 179 expensing thresholds, and the creation of a new 100% bonus-eligible category for Qualified Production Property (QPP). 

100% bonus depreciation is back

The bill permanently reinstates 100% bonus depreciation under Section 168(k) for qualifying property acquired and placed in service after Jan. 19, 2025, overriding the reduction to bonus depreciation that would have occurred in 2025-2027. Qualified property includes most tangible personal property with a recovery period of 20 years or less, such as furniture, fixtures, equipment, land improvements, and qualified improvement property. OBBB does modify IRC Section 168(k)(10) to allow taxpayers to elect to claim 40% or 60% in lieu of the 100% bonus depreciation (Transitional Election).

However, it’s important to pay close attention to the acquisition date. To qualify for the 100% rate, property must meet the following “acquisition” requirements:

• Acquired property: Must be purchased under a written binding contract executed on or after Jan. 20, 2025.
• New construction: Treated as “acquired” when construction begins, typically defined by the 10% test, meaning the taxpayer must incur more than 10% of the total expected construction costs (excluding land and preliminary activities such as planning, design, financing, exploration, or research) to establish the acquisition date.
• Pre-OBBB acquisitions: Property acquired before Jan. 20, 2025, or subject to a binding contract entered into before that date, is not eligible for the new 100% rate. Instead, bonus depreciation is limited under the pre-OBBB phase-down rates.

CR takeaway: Given the definition of “acquisition” for purposes of 100% bonus depreciation, taxpayers should carefully consider the date of the written binding contract and/or the construction start date to properly apply the above rules. Additionally, performing cost segregation studies in connection with new 2025 property could maximize the amount of 100% bonus eligible property. 

Increased Section 179 limitation

The new legislation increases the maximum Section 179 expense to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. These amounts will be adjusted for inflation annually. The new limits apply to property placed in service for tax years beginning after Dec. 31, 2024.

CR takeaway: The OBBB significantly expands Section 179 expensing limits, offering businesses greater opportunities to immediately deduct the full cost of qualifying assets. With higher deduction and phase-out thresholds starting in 2025, taxpayers should plan capital purchases carefully – while also monitoring placed-in-service timing, business-use requirements, and potential state-level limitations.

100% deduction for QPP

The OBBB introduces a new tax incentive under Section168(n), allowing 100% bonus depreciation on the adjusted basis of QPP. This provision is designed to promote domestic investment by enabling taxpayers to fully expense the cost of eligible nonresidential real property. Taxpayers must make an irrevocable election to apply this special depreciation.

QPP is nonresidential real property that:

• Is used by the taxpayer as an integral part of a qualified production activity;
• Is located in the U.S.;
• Has original use beginning with the taxpayer; and
• Begins construction after Jan. 19, 2025, and before Jan. 1, 2029, with placement in service by Jan. 1, 2031.

Qualified Production Activity includes manufacturing, production, or refining of a qualified product. It excludes any portion of a building used for non-production purposes, such as office space, administrative functions, lodging, parking, sales, R&D, software development, and engineering. This exclusion presents practical challenges for mixed-use facilities, where careful cost segregation will be necessary to isolate qualifying components. The rule also clarifies that for property leased to others, use by the lessee does not count as use by the taxpayer for purposes of qualifying production activity.

Notably, the legislation leaves several critical terms undefined such as manufacturing and production. In the absence of immediate regulatory guidance, the IRS may look to past or existing frameworks – such as the uniform capitalization rules under Section 263A or the former Section 199 manufacturing deduction – to define manufacturing and production.

CR takeaway: The 100% bonus depreciation for QPP offers a powerful incentive to invest in eligible assets by allowing full expensing in the year placed in service. However, it also introduces challenges, including complex qualification rules, strict timing requirements, state conformity issues, and heightened audit risk. Careful planning and documentation are essential to fully benefit from this provision while managing compliance.

What does CohnReznick think?

At CohnReznick, we view the OBBB as a timely opportunity for businesses to revisit their fixed asset strategies. With 100% bonus depreciation back in play, accelerating capital projects into 2025 and leveraging cost segregation studies can significantly enhance depreciation benefits and boost cash flow.

Tax advisors can help businesses navigate these changes by providing strategic guidance on acquisition timing, tax elections, and asset utilization planning.