OBBBA Revamps Tax Depreciation: 100% Bonus, Section 179 Expansion, & New Qualified Production Property

December 4, 2025

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, contains changes to tax depreciation rules, including the reinstatement of 100% bonus depreciation, expansion of expensing under Section 179, and creation of Qualified Production Property (QPP).

Permanent Restoration of 100% Bonus Depreciation

Under TCJA, bonus depreciation was phasing out, with 40% bonus depreciation allowed for property acquired and placed in service in 2025. OBBBA permanently restored bonus depreciation under Section 168(k) to 100% for eligible property acquired and placed in service after Jan. 19, 2025.

Bonus depreciation can still be taken on new and used property. Additionally, the provisions added sound recording production property to the list of qualified property for tax years ending after July 4, 2025. Taxpayers may elect to claim 40% bonus depreciation instead of 100% bonus depreciation during the first taxable year for property acquired and placed in service after Jan. 19, 2025, which allows for flexibility in 2025 year-end tax planning. Bonus depreciation still applies unless the taxpayer elects out of one or more classes of property to preserve depreciation for future years.

Determining Acquisition & Construction Dates

Generally, the acquisition date is determined by the date on which the written contract is considered binding. And, generally speaking, the contract is binding on the later date on which the contract was entered (the date on which the contract is enforceable under state law). If the contract has one or more cancellation periods, the acquisition date is the date on which all cancellation periods end. Alternatively, if the contract includes one or more contingency clauses, the acquisition date is the date on which all conditions subject to these clauses are satisfied.

For self-constructed property or property constructed for the taxpayer under a written binding contract, a taxpayer will need to carefully evaluate (and document) when construction begins. Construction is defined in regulations to have begun when physical work of a significant nature begins, which may vary depending on specific facts and circumstances. The regulations also provide a safe harbor for the determination of when construction begins, as the date the taxpayer incurs (accrual basis) or pays (cash basis) more than 10% of the cost of property, excluding land and preliminary activities. Property manufactured, constructed, or produced for the taxpayer by another person must satisfy the 10% safe-harbor rules when determining the acquisition date.

Section 179 Expensing: Higher Limits & Expanded Scope

The OBBBA also increased the annual Section 179 expensing provision for tax years beginning after Dec. 31, 2024. The Section 179 expensing limit increased to $2.5 million, and the dollar-for-dollar phaseout increased to $4 million for qualified property placed in service during the year. The deduction and phaseout thresholds will be indexed for inflation in future years.

Taxpayers can take both Section 179 and bonus depreciation in the same year, which allows for flexibility with tax planning. Section 179 expenses are taken before the bonus and the Modified Accelerated Cost Recovery System (MACRS) depreciation. And, unlike bonus depreciation, Section 179 is subject to income limitations.

Section 179 expensing generally only applies to Section 1245 property, which refers to certain tangible and intangible assets that are, or have been subject to depreciation or amortization and, upon sale at a gain, require all or part of that gain to be reported as ordinary income, but can also be taken on certain qualified real property. Qualified real property includes Qualified Improvement Property (QIP), or any improvement made by the taxpayer to an interior portion of a building considered nonresidential real property, and specific nonresidential real property improvements such as roofs, HVACs, and security systems placed in service after the building was first placed in service by any person.

Introducing Qualified Production Property (QPP)

The OBBBA also created a new class of building property under Section 168(n) known as Qualified Production Property (QPP), which allows, at the election of the taxpayer, 100% expensing of the portion of a non-residential real property used as an integral part of Qualified Production Activities (QPA) – or the substantial transformation of the property by means of manufacturing, production, or refining.

For purposes of this election, the definition of production is limited to agricultural and chemical production, whereas the definition of manufacturing and refining is not specifically defined and presumably would have a broader meaning. A qualified product means any tangible personal property if such property is not a food or beverage prepared in the same building as a retail establishment in which such property is sold. QPA must result in a substantial transformation of the property.

The property must be used in the United States or any possession of the United States, and the original use of the property must commence with the taxpayer. Additionally, the construction must begin after Jan. 19, 2025, but before Jan. 1, 2029, and be placed in service before Jan. 1, 2031.

Furthermore, per the OBBBA, property used by a lessee shall not be used by the taxpayer as part of a qualified production activity. Additionally, the new code section states that certain spaces, such as those used for offices, administrative services, lodging, parking, sales, engineering, or other functions unrelated to the manufacturing, production, or refining of tangible personal property, are not included in the definition of QPP. Once made, the election is irrevocable without the consent of the Secretary of the Treasurer (or the IRS, acting as the Secretary’s delegate).

State Conformity & Strategic Considerations

State conformity with Federal tax depreciation rules varies from state to state. Taxpayers should consider state conformity as part of tax planning. For further guidance and strategic planning on how the new tax depreciation rules under the OBBBA apply to your business, contact GBQ’s expert team of tax professionals.

By Jon Powell, EA, Senior Manager, Cost Segregation & Advisory, Molly Waite, CPA, Senior Manager, Tax & Advisory, and Kyle Porter, CPA, Manager, Tax & Advisory.