The One Big Beautiful Bill Act, enacted in July 2025, introduces major revisions to bonus depreciation, reestablishing full 100 percent expensing for qualifying property acquired and placed in service after January 19, 2025. This change reverses the phase-down structure enacted in prior legislation, which had reduced bonus depreciation to 40 percent in 2025 and eliminated it altogether after 2026. The updated rules apply to both new and, under certain conditions, used property, and are expected to significantly influence planning for capital expenditures across a range of industries.

Among the most consequential provisions is the creation of a new category of property: “qualified production property.” This includes nonresidential real estate that is newly constructed and used as an integral part of manufacturing, refining, or agricultural production activities. To qualify, construction must begin after January 19, 2025, and the property must be placed in service by December 31, 2030. The property must also be used directly by the taxpayer in a qualifying activity and cannot be leased to a third party. Structures used for office work, administrative services, sales, research, or lodging are explicitly excluded. The treatment of such real property as eligible for full expensing represents a significant departure from traditional depreciation schedules, which have applied a 39-year recovery period for similar assets.

A new recapture regime accompanies the expanded bonus depreciation provisions. If qualified production property ceases to be used in a qualifying activity within ten years of being placed in service, the bonus deduction is subject to full recapture as ordinary income. This approach contrasts with the treatment of other real property and is intended to ensure that the accelerated deduction aligns with continued qualified use.

The updated rules also preserve bonus depreciation for certain used property, subject to long-standing statutory acquisition requirements. Used property is eligible if the taxpayer did not use it previously, it was not acquired from a related party, and it does not carry over basis from a prior owner. For purposes of determining eligibility, the date a written binding contract is executed is the key factor. Property acquired under contracts signed before January 20, 2025, remains subject to the lower, phased-down rates in effect prior to the new law. The statute also reaffirms eligibility for specified plants, including trees and vines that bear fruit or nuts, if planted or grafted after January 19, 2025.

The IRS is expected to issue implementing guidance in the coming months, clarifying procedures for making elections, satisfying use tests, and complying with recapture provisions. Businesses considering significant capital investments should begin discussions with their advisors now to ensure they can make timely, strategic decisions aligned with the new rules.