Bonus Depreciation 2025 Becomes Permeant Under Big Beautiful Bill

The One Big Beautiful Bill Act (OBBBA) has delivered a significant win for capital-intensive sectors by permanently extending 100 percent bonus depreciation for qualifying property placed in service after January 19, 2025. This move eliminates the prior phasedown schedule that would have ended bonus depreciation by 2027.

This change is especially important for construction and real estate businesses, which routinely invest in assets such as land improvements, fixtures, machinery, and interior non-structural upgrades to nonresidential buildings (known as Qualified Improvement Property or QIP). Qualified Improvement Property (QIP) is defined as interior improvements made by the taxpayer to non-residential real property after the building is first placed in service. This includes items like drywall, interior doors, ceilings, electrical systems, plumbing, and HVAC. However, it excludes building enlargements, elevators, escalators, and the structural framework.

With the full cost of these investments now immediately deductible for federal tax purposes, businesses can lower their taxable income and improve cash flow in the year of acquisition.

In addition to preserving full bonus depreciation for standard qualified property, OBBBA adds a new provision under IRC Section 168N. It allows for 100 percent bonus depreciation for Qualified Production Property (QPP) if used in a qualifying manufacturing or production activity and placed in service between January 20, 2025 and December 31, 2030. This could benefit real estate tied to industrial uses but explicitly excludes property used for administrative, lodging, parking, sales activities, research activities, software engineering activities or office functions.

For businesses not wanting to absorb the full deduction at once, the bill also provides a transitional option to elect 40 or 60 percent depreciation in the first year, adding flexibility to align tax deductions with income timing strategies.

While the federal tax code embraces this change, several states have not conformed to bonus depreciation provisions and require taxpayers to add back the deduction. Construction and real estate companies with multistate operations should track these discrepancies closely to avoid unintended tax liabilities.

Navigating the complexities of bonus depreciation rules and planning around state-level nuances can be challenging. At CSH, our construction and real estate tax specialists help clients structure asset purchases and depreciation strategies to optimize federal and state outcomes. Whether you're investing in tenant improvements, expanding your fleet, or evaluating industrial real estate for production use, CSH is ready to guide you through the opportunities created by OBBBA.