What is 100% “Bonus" Depreciation and How Does it Work?

One of the key tax provisions in the One Big Beautiful Bill Act (OBBBA) is a provision that permanently extends the 100% “bonus” depreciation rule adopted under the Tax Cuts and Jobs Act (TCJA) of 2017. What is “bonus” depreciation? When can (and should) businesses claim it? What are the risks involved? Virginia business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

What is “Bonus” Depreciation?

The term “bonus” depreciation is actually a bit of a misnomer. The “bonus” depreciation rules do not allow businesses to deduct more than the value of an asset acquired for business use. Instead, “bonus” depreciation refers to the ability to immediately deduct the full value of a qualifying business asset rather than expensing it over time.

When Can (and Should) Businesses Claim “Bonus” Depreciation?

Under the OBBBA, businesses can claim 100% “bonus” depreciation for qualifying assets acquired on or after January 20, 2025. Broadly, categories of qualifying assets include:

• Listed property
• Short-term assets (those with a useful life of 20 years or less)
• Short-term rentals
• Qualified improvement properties
• Qualified production properties

While most of these categories existed under the TCJA, the concept of “qualified production property” is new under the OBBBA. A newly constructed property can constitute “qualified production property” if it is located in the United States, construction is completed before January 1, 2029 and the property is placed into service in a “qualified production activity” before January 1, 2031.

All of the categories listed above are subject to specific requirements and exceptions, so it is imperative that businesses assess the eligibility of their assets for 100% “bonus” depreciation under the OBBBA on a case-by-case basis.

What are the Risks Involved in Claiming “Bonus” Depreciation?

While claiming “bonus” depreciation can allow businesses to achieve significant short-term tax savings, there are risks involved in improperly claiming “bonus” depreciation under the OBBBA. As with other tax-related violations, improperly claiming “bonus” depreciation can trigger immediate liability for interest and penalties.

Businesses that improperly claim “bonus” depreciation will also be at risk of facing scrutiny from the Internal Revenue Service (IRS). The IRS has prioritized business tax audits in recent years, and when identifying audit targets, it often focuses on areas that present a high likelihood of noncompliance. New tax rules—especially those that provide opportunities for significant tax savings—generally fall into this category.

With this in mind, when claiming “bonus” depreciation in 2025 (or beyond), businesses will want to be careful to both ensure and document compliance. By documenting their eligibility for “bonus” depreciation, businesses can not only mitigate their risk of making mistakes, but they can also ensure that they are prepared to withstand IRS scrutiny if necessary.

Contact Virginia Business Tax Attorney Kevin E. Thorn

This is a very brief introduction to the “bonus” depreciation rules under the OBBBA. If you need to know more about “bonus” depreciation compliance—or if your business is facing scrutiny from the IRS—we invite you to get in touch. Call 703-752-3752 or contact us online to schedule a confidential consultation with Virginia business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.