Bonus depreciation is a tax incentive that allows businesses to immediately deduct a significant portion—or even the entire cost—of eligible assets, such as machinery, equipment, and certain improvements, in the year the asset is placed into service. This upfront deduction accelerates tax benefits compared to traditional depreciation, which spreads deductions across an asset’s expected useful life, often over many years. By pulling tax deductions forward, bonus depreciation lowers the after‑tax cost of capital and improves cash flow at the moment the taxpayer invests.

The opportunity to accelerate depreciation has been used frequently over the last 25 years to stimulate the economy and provide relief to businesses.

The 2017 TCJA provided 100% bonus depreciation (full expensing) from 2018 to 2022, with a phaseout that began in 2023, reached 40% in 2025, and would have ended in 2027. However, the One Big Beautiful Bill (BBB) reinstated 100% bonus depreciation and made it permanent. The depreciation allowance applies to qualified property placed in service after January 19, 2025. Qualified property includes machinery, equipment, vehicles, furniture, computers, and qualified improvement property.

New and used assets are eligible, provided they are purchased from an unrelated party, are not received by gift or inheritance, have not been previously used by the taxpayer, and are used more than 50% for business purposes.

Key Beneficiaries

Real estate developers and investors will benefit from the expedited depreciation for equipment and qualified property improvements. Qualified improvement property (QIP) generally includes improvements to the interior of a nonresidential building made by the taxpayer after the building has been placed in service.

Although exterior improvements do not qualify as QIP, many site improvements—such as landscaping, parking lots, sidewalks, and fencing—can still be eligible for bonus depreciation if their recovery period is 20 years or less. Cost segregation studies help developers identify and reclassify these components into shorter‑lived categories that qualify for accelerated depreciation.

Other industries that will benefit significantly from this change include capital-intensive businesses such as manufacturing, construction, and logistics. While large companies typically make higher capital investments and will see the most significant immediate reduction in their taxable income, the boost may be even more impactful for emerging and mid‑sized growth companies, which can use the tax savings to fund working capital, expansion, and debt reduction.

Service businesses, such as law firms, software developers, and consultants, typically don’t invest as heavily in depreciable assets and therefore benefit less. Their primary opportunities lie in office build‑outs, technology and equipment upgrades, and qualified improvement property.

Impact on the economy and federal budget

Keep in mind that previous bonus depreciation provisions were temporary, encouraging businesses to pull forward or ‘front‑load’ planned investments before the incentive expired.

Businesses may have accelerated already planned investments to take advantage of faster depreciation. The permanence of the depreciation now in place should help establish a more consistent flow for both the businesses and for federal tax revenue expectations.

For example, in 2018, following the enactment of the TCJA, US corporations made $1.23 trillion in new investments in depreciable assets. The estimated reduction in federal tax revenue over the expected life of the phaseout was $86 billion. With depreciation restored to 100% and extended permanently, the estimated reduction in federal tax revenue over the ten years from 2028 to 2038 is between $369 billion and $378 billion. These figures reflect timing shifts in tax collections rather than permanent forgiveness of tax.

Remember, bonus depreciation does not change the amount of the deduction; it accelerates the timing. If a company invests $1 million in eligible assets, it is entitled to a $1 million deduction. The bonus is getting the entire $1 million deduction in the first year rather than over an extended period. The economic benefit comes from the time value of money: deducting more upfront reduces taxes when cash is most valuable, especially for growing or highly leveraged businesses.

Most states do not conform to federal bonus depreciation provisions, requiring taxpayers to calculate investments differently for their state tax returns. This mismatch adds compliance complexity and can partially offset the federal cash‑flow benefit.

How much will bonus depreciation increase capital investments?

One crucial aspect of the permanent extension is that it removes the ‘use it before you lose it’ pressure that led companies to bunch investments ahead of scheduled phase‑downs. With reliable, permanent full expensing, companies can design long‑term capital plans knowing that the tax treatment of new investments will be consistent year after year. Economic models generally project that permanent bonus depreciation could raise U.S. GDP by almost half a percentage point relative to temporary or phased‑out incentives, primarily by increasing the capital stock. While these are estimates rather than guarantees, they underscore how materially tax timing can influence investment behavior.

Conclusion

Permanent 100% bonus depreciation is more than a tax perk—it is a structural shift in how the U.S. tax code treats capital investment. For real estate and capital‑intensive businesses, it turns every qualifying project into a more powerful cash‑flow tool, pulling tax savings forward to the moment capital is deployed. The investors who benefit most will be those who combine this incentive with careful project selection, cost segregation, and thoughtful coordination of federal and state tax planning.