If you’re a small business owner, freelancer, or entrepreneur buying equipment, vehicles, or making improvements in 2025, the tax code just handed you a major win. Thanks to the One Big Beautiful Bill Act (OBBBA) signed in mid-2025, 100% bonus depreciation is back permanently for most assets placed in service after January 19, 2025—and Section 179 limits got a huge boost to $2.5 million.
These changes mean you could potentially deduct the full cost of qualifying purchases in year one instead of spreading them over 5–39 years. But with great power comes choices: Which method should you use? Can you combine them? And what assets actually qualify?
In this post, we’ll break down every major depreciation type for tax year 2025, compare them head-to-head, and share pro tips to help you save thousands (or more). Let’s dive in—your bottom line will thank you.
1. Section 179 Expensing: Deduct Up to $2.5 Million Right Away
Section 179 lets you immediately expense (deduct) the full cost of qualifying business property in the year you place it in service—no waiting for depreciation schedules.
• 2025 Limits — Maximum deduction: $2,500,000 (doubled from prior years thanks to OBBBA and inflation adjustments).
Phase-out starts if total qualifying property placed in service exceeds $4,000,000 (dollar-for-dollar reduction).
• Best For → Smaller to mid-sized purchases where you want flexibility. You can pick and choose assets, expense partial amounts, or even carry over unused limits in some cases.
• Qualifying Assets → Most tangible personal property (computers, machinery, furniture, off-the-shelf software), certain vehicles (with GVWR limits), and qualified improvement property (e.g., interior upgrades to commercial spaces).
• Thought-Provoking Tip → Unlike bonus depreciation, Section 179 is limited by your business income (can’t create a net loss in some scenarios). Pair it wisely!
2. 100% Bonus Depreciation: The Game-Changer That’s Now Permanent
The star of 2025: 100% first-year bonus depreciation under Section 168(k), restored and made permanent by OBBBA for qualified property acquired and placed in service after January 19, 2025.
• 2025 Rate → 100% immediate write-off (no dollar cap!).
Note: For assets placed in service between Jan 1–19, 2025, it was 40% under prior rules, but post-Jan 19 flips to full 100%. You can elect a lower rate (e.g., 40%) in the first qualifying year if it helps your tax strategy.
• Best For → Big-ticket items like machinery, heavy equipment, or fleets—no income limit, and it can create or increase a net operating loss to carry forward.
• Qualifying Assets → New or used MACRS property with ≤20-year recovery period (most business gear qualifies), certain films/TV, plants/fruits, and qualified improvement property.
• Pro Tip → Apply bonus after Section 179 on the remaining basis for maximum acceleration.
3. MACRS (Modified Accelerated Cost Recovery System): The Standard Go-To
MACRS is the IRS’s default depreciation system for assets placed in service after 1986.
• How It Works → Uses IRS tables with accelerated methods:
• 200% declining balance (switching to straight-line) for most personal property (e.g., 5-year for computers/vehicles, 7-year for furniture).
• 150% declining balance for some farm/real property.
• 39-year straight-line for non-residential real estate.
• Best For → Any remaining basis after you’ve maxed Section 179 and bonus. Great if you want to match deductions to future income or elect out of bonus for smoother write-offs.
• Key Note → Always calculate MACRS on what’s left after the above methods.
4. Straight-Line Depreciation: The Slow-and-Steady Option
• Even annual deductions over the full recovery period (no acceleration).
• Required for certain assets under the Alternative Depreciation System (ADS), like some real estate or tax-exempt use property.
• When to Choose → For predictability, avoiding AMT triggers (less common now), or when spreading deductions benefits you long-term.
How to Stack Them for Maximum Savings in 2025
1. Choose Section 179 assets first (up to your limit/income).
2. Apply 100% bonus depreciation to the rest (post-Jan 19 placements).
3. Depreciate any leftover basis under MACRS.
Example → Buy $300,000 in qualifying equipment:
• Take $200,000 via Section 179.
• Take 100% bonus on the remaining $100,000.
→ $300,000 deducted in year 1!
Final Thoughts: Don’t Leave Money on the Table
With 100% bonus depreciation permanent and Section 179 at record highs, 2025 is one of the best years ever to invest in your business. But timing is everything—assets must be placed in service by December 31, 2025.
Which depreciation strategy are you leaning toward this year? Planning a big equipment purchase, vehicle upgrade, or home office setup? Drop your situation in the comments—I’d love to share tailored ideas or examples. And if you’re ready to act, consult IRS Publication 946, Form 4562 instructions, or your tax professional for your specific setup (rules have nuances!).
Leave a Reply