The primary downsides of bonus depreciation include losing future tax deductions for the same asset, potential for recapture taxes upon sale, and, in some cases, reducing the benefits of other deductions like §199A. It also creates state tax non-conformity issues in certain jurisdictions and can cause taxable income volatility, making it less effective for businesses with fluctuating profits.
Con: as mentioned above, if you decide to use 100% bonus depreciation in one year, you have then lost the deductions that could have been used in the future. Depending on your tax situation, the year the company doesn't buy any fixed assets is generally the year that income is down or cash flow is lower.
Electing out will allow you to offset the higher income with more depreciation expense in the later years. If you plan to sell the purchased property in a year in which you are in a higher tax bracket, any depreciation recapture would be taxed at the higher rate.
100% bonus depreciation is a recently reinstated provision of the tax code that allows property owners and real estate investors to claim a tax deduction equal to 100% of the cost of a qualified business property. This can be a useful tool for lowering your business tax obligations in certain situations.
OBBB Changes to Bonus Depreciation
The bonus depreciation rate for 2025 pre-OBBB was just 40%. The OBBB, however, permanently reinstated 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025.
For the year 2024, the annual gift tax exclusion amount is $18,000 per recipient, including children. This means an individual can gift up to $18,000 to any number of people within a calendar year without triggering the need to file a gift tax return or affect their lifetime gift tax exemption.
What about the taxes? John choosing to restrict development of the Yellowstone with a conservation easement reduces the ranch's value, thereby eliminating or vastly shrinking the estate taxes due at John's death.
One of the downsides of rental property depreciation is the recapture tax. When you sell a depreciated property, you may be subject to a recapture tax on the depreciation deductions you previously claimed. This tax can be substantial and should be factored into your long-term investment strategy.
On July 4, 2025, President Trump signed the 2025 tax reform into law as P.L. 119-21, Republicans' “One Big Beautiful Bill.” Among its most impactful provisions is the permanent restoration of 100% bonus depreciation, offering long-term clarity for tax planning and capital investment strategies.
If the vehicle weighs more than 6,000 pounds and is used more than 50% for business, you can write off up to $28,900 in the first year, and potentially even more with bonus depreciation. Let's break it down: Buy a qualifying vehicle for $60,000, and you could write off a large portion of that cost in year one.
Limited circumstances for stand-alone 179 benefits.
The Section 179 expense limit and phase-out threshold ($2,560,000 and $4,090,000, respectively, for 2026) are now permanent parts of the tax code that are adjusted annually for inflation.
Essentially, bonus depreciation, also referred to as the additional first-year depreciation deduction, allows your business to take an immediate first-year deduction on the purchase of eligible business property in addition to the asset's regular depreciation schedule.
The 2% rule is a guideline stating that an investment property should generate monthly rent of at least 2% of its purchase price. For example, if a property costs $200,000, it should bring in at least $4,000 per month in rent ($200,000 x 0.02 = $4,000) for the 2% rule to be satisfied.
General Depreciation System (GDS)
GDS is the most common method. For residential rental properties, the IRS requires landlords to use the straight-line method over 27.5 years. Therefore, landlords deduct the same amount annually until they recover the building's cost basis.
Bonus Depreciation Is Back at 100%: What Businesses Need to Know in 2025. If your business buys equipment or is planning to upgrade a facility or purchase vehicle(s), your 2025 tax-planning should include consideration of 100% bonus depreciation.
The big plus is timing. Instead of recovering an asset's cost over multiple years, bonus depreciation lets you deduct a large share—now 100% for many assets—in the year the property is placed in service, accelerating deductions and typically improving after-tax cash flow.
What is the seven-year rule in Inheritance Tax? The seven-year rule states there is no Inheritance Tax due on certain gifts (potentially exempt transfers) given to a second party seven or more years before you die.