Are there any phase-out provisions for bonus depreciation under the 2025 tax law?
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Yes, there are phase-out provisions for bonus depreciation under the 2025 tax law, but the rules have changed significantly due to recent legislation.
1. Background and Pre-2025 Law
Under prior law, bonus depreciation under IRC §168(k) was scheduled to phase down for property acquired after September 27, 2017, as follows:
- 100% for property placed in service 2018–2022
- 80% for 2023- 60% for 2024
- 40% for 2025- 20% for 2026
- 0% for 2027 and later
This phase-out applied to most qualified property with a recovery period of 20 years or less, as well as certain other property, unless Congress acted to extend or modify the provision.
2. 2025 Law Changes (One Big Beautiful Bill Act, OBBBA)
The One Big Beautiful Bill Act (P.L. 119-21, H.R. 1, OBBBA), enacted in 2025, made significant changes to bonus depreciation:
- For property acquired and placed in service after January 19, 2025, the law restores 100% bonus depreciation permanently for most qualified property, including certain plants. This means that for property acquired after this date, there is no phase-out; 100% expensing is available indefinitely.
- For property acquired under a binding contract before January 20, 2025, or actually acquired before that date, the original phase-out schedule (60% for 2024, 40% for 2025, 20% for 2026, 0% for 2027 and after) continues to apply, even if the property is placed in service after January 19, 2025. This means that the phase-out provisions are still relevant for property acquired before the new law’s effective date.
- For certain special property (such as certain plants bearing fruits and nuts), the law also restores 100% bonus depreciation for those planted or grafted after January 19, 2025.
3. Summary Table: Bonus Depreciation Rates for 2025 and Beyond
Key Points:
- The phase-out schedule still applies to property acquired (or under a binding contract) before January 20, 2025.
- For property acquired after January 19, 2025, there is no phase-out; 100% bonus depreciation is restored and made permanent.
- Taxpayers must carefully track acquisition dates and contract dates to determine which schedule applies.
- The law allows a transitional election for certain property to use a reduced percentage (40% or 60%) in limited circumstances.
Conclusion: There are phase-out provisions for bonus depreciation in 2025, but only for property acquired or under a binding contract before January 20, 2025. For property acquired after that date, 100% bonus depreciation is available with no phase-out under current law.
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