Section 179 or Bonus Depreciation: What's Best After OBBBA

Recent tax law changes under the One Big Beautiful Bill Act created powerful opportunities to write off business assets faster than ever. You now face an important decision: should you use Section 179 expensing or 100 percent bonus depreciation?

The law restored 100 percent bonus depreciation for qualifying assets placed in service after January 19, 2025. This rule allows you to deduct the full cost of equipment, software, certain vehicles, and qualified improvements in the first year.

At the same time, Congress expanded Section 179. You can now expense up to $2.5 million of eligible assets, subject to a phaseout if total purchases exceed $4 million.

While both options offer large upfront deductions, key differences should guide your decision:

• Bonus depreciation advantages. Bonus depreciation has no income limits and no annual cap. You can create a business loss and potentially generate a net operating loss (NOL). This flexibility makes bonus depreciation the default choice in many situations.

• Section 179 limitations. Section 179 includes several restrictions. Your deduction cannot exceed your business income, and phaseout rules may reduce your benefit. These limits can delay tax savings through carryovers.

• Important trade-off. Bonus depreciation can create an NOL, but that NOL will not reduce your self-employment income in future years. In contrast, Section 179 carryovers can reduce both taxable income and self-employment income later.

Bottom line. Most businesses benefit from bonus depreciation because it delivers immediate, unrestricted deductions. However, Section 179 can still add value when future income and self-employment tax savings matter.

If you want to discuss bonus depreciation versus Section 179 expensing, please reach out to the SFR team at: admin@strategicfinancialreporting.com