In Part 2 of our interpretation of H.R.1, more commonly known as the One Big Beautiful Bill Act, we will highlight two additional provisions that can impact your business and taxes. Depreciation and Section 179 Expensing.
Bonus Depreciation
The passage of 2017’s Tax Cuts and Jobs Act (TCJA) introduced the 100% bonus depreciation provision under IRC Section 168K. This provision allowed businesses to immediately write off 100% of the cost of eligible property placed into service during the current tax year. This provision began to sunset with the 2023 year, decreasing 20% per year, with the full phase out set to occur in 2027.
H.R.1. brings this provision back at the full 100%. Under the revised Section 168(k) criteria, bonus depreciation is once again applicable to eligible property at 100%. The bill also makes this provision permanent, eliminating the phaseout included under the TCJA’s version from 2017.
Who qualifies?
All business entities are eligible to utilize bonus depreciation under Section 168(k). It applies equally to those filing Forms 1120, 1120-S, 1065, and Schedules C and E. There is no dollar limit to the assets eligible, income cap, or threshold applicable.
What is “eligible property?”
Eligible property includes most tangible assets apart from real (estate) property. While there are some carve-outs for certain leasehold, land, or building improvement properties and limits on certain types of vehicle purposes, most other purchases of tangible business property will qualify. We expect all of your furniture and fixtures, brewing equipment, restaurant equipment, office wares, etc. to qualify.
There is the potential for certain real property to qualify as well under the H.R.1 updates to bonus depreciation. We will discuss that a little later.
When does this start?
This applies to qualified property acquired after January 19, 2025.
Real Property Application
In addition to bringing back the 100% bonus depreciation from TCJA, H.R.1 adds IRC Section 168(n), allowing for 100% bonus depreciation for real property used in the production of tangible personal property.
While this provision will require further clarification from the treasury, we expect it to allow for 100% bonus depreciation on the construction of new manufacturing facilities used for a qualified production activity, including producing or refining qualified products. Further insight on what constitutes a qualified product is expected to be published in the coming months. Once that is released, we will be able to provide more detail on the applicability of this provision to the beverage industry.
As a business owner, does this benefit me?
Yes. Under this provision, if you purchase qualified property, the application will reduce any net income to the business which will reduce the taxes that you or the business will pay.
Section 179 Expensing
IRC Section 179 allows taxpayers to elect immediate expensing of certain business property in the year of acquisition, rather than depreciating the property under the applicable depreciation regulations. This provision is subject to a statutory limit as well as a business income limitation.
H.R.1 increases the statutory expense limit from an inflation adjusted $1,000,000 to $2,500,000. The business income limitation remains unchanged.
Why don’t we apply Section 179 to all asset purchases under the limit?
Section 179 has more limitations (rules) than bonus depreciation. Fewer asset types qualify and the business income limitation prevents its use in years you have negative net income (loss). With the return of 100% bonus depreciation for 2025, we do not expect to see Section 179 expensing utilized to the degree seen during the bonus phase out period under the TCJA rules.
As a business owner, does this benefit me?
Yes. Under this provision, if you purchase qualified property, the application will reduce any net income to the business which will reduce the taxes that you or the business will pay.
We will continue to advise you on depreciation management. Each year as part of tax planning we will evaluate your business’ income position, capital account balances, member basis, and considerations for future events. Based on these factors, we will provide our recommendation on the depreciation strategy that best benefits the business and you as its owner(s).
If you have any questions about these provisions at their current stage or how they relate to your business and employees, please feel free to reach out to us. We will continue to update you as further guidance is released.
If you missed it, you can read Part 1 of our tax update on tips here.