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KEY TAKEAWAYS
- The ‘One Big Beautiful Bill’ boosted a deduction for qualified business expenses, allowing business owners to subtract the total amount they paid from their 2025 taxable income, rather than just 40% of the cost.
- This deduction applies only to property that depreciates over time, such as equipment, buildings, vehicles, or furniture.
If you bought equipment, buildings, furniture, or a vehicle for your business in 2025, you may be able to deduct the entire purchase from your taxes this filing season.
The ‘One Big Beautiful Bill’ made many significant changes to tax laws, which are expected to increase refunds and lower tax bills for many Americans. One of these changes allows business owners to deduct the full cost of qualified business purchases in a single tax year. Previously, business owners could only deduct the full cost of an item if they spread the deduction over several years.
This tax deduction, called the additional first-year depreciation, but typically referred to as the bonus depreciation, was hiked during the COVID-19 pandemic from 50% to 100% of the qualifying business purchase. However, starting in 2023, bonus depreciation began to phase out. In 2025, taxpayers could deduct only 40% of business purchases in a single tax year, and the deduction was scheduled to be eliminated by 2027.
Why This Matters
The permanent move to 100% bonus depreciation boosts incentives for businesses to increase capital spending. Accelerated purchasing can support higher productivity and broader economic growth.
The ‘One Big Beautiful Bill’ brought back the 100% deduction, allowing business owners to deduct the full amount of any property acquired and put into service anytime after January 19, 2025. The law also made the 100% bonus deduction permanent.
“I think the bonus depreciation is a huge, huge opportunity for taxpayers,” said Michael Mofsa, founder of Prosperity Tax Advisors. “It is one of the biggest pieces in this One Big Beautiful Bill.”
How Does Bonus Depreciation Work?
When a business owner purchases property that depreciates in value over time, such as buildings, machinery, vehicles, and furniture, they can deduct part of the cost from their taxable income. There are some exceptions to the rule, including land.
Originally, owners were only permitted to deduct the total value of their purchased property if they spread it over the property’s expected lifespan. For example, if a business owner bought a $25,000 vehicle strictly for business use and expected it to last five years, they could deduct $5,000 from their taxable income each year for those five years.
However, with the changes to bonus depreciation in the ‘One Big Beautiful Bill,’ taxpayers can deduct 100% of a purchase amount in a single year.
“Instead of depreciating the equipment over five to seven years, you can deduct a large percentage immediately,” Mofsa said. “It lowers the taxable income of the business owner, or if you have a side business or a hobby, it reduces current year tax liability and creates real tax savings.”
Using the same example of a $25,000 vehicle bought in 2025 for business, the owner could deduct the total cost of the car from their 2025 taxes using bonus depreciation.
Any property purchased before January 19, 2025, can still have only 40% of its value deducted. Taxpayers can find this deduction in Form 4562, called “Depreciation and Amortization,” on Line 14, labeled “Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year.”
