Many people often hear the word depreciation, but very few understand it. An accountant might define depreciation using complicated financial mumbo jumbo that is learned in their years as a CPA. However, for the purposes of this article, the goal is to explain this concept of depreciation in simpler terms.
Depreciation is a business expense that is used when a business makes a large purchase of something that they will use for multiple years. They are required to expense the cost of that asset over its useful life (determined by the IRS), instead of all at once. For example, a $40,000 truck purchase would generally be required to be “depreciated” over a timeline of five years. This would result in a roughly $8,000 depreciation expense each year, until the five years are up.
That is, until President Trump reinstated 100% bonus depreciation via the One Big Beautiful Bill Act (OBBBA) in July of 2025. What bonus depreciation allows is the immediate expensing of certain capital assets. That same truck that you paid $40,000 for? You are now able to deduct the entire $40,000 in the year you purchased it, instead of spreading it out over multiple years. This $40,000 deduction results in a direct decrease to your business’s taxable profit, allowing you to pay less taxes to Uncle Sam.
Tax professionals have been using bonus depreciation to seriously cut down on their clients’ tax liabilities for the 2025 tax year. For example, hotel and real estate owners are able to deduct most or all of the renovations and repairs in the same year they are implemented. In the same way, restaurant owners are able to deduct the full cost of all the new kitchen equipment purchased. Small business owners, across many industries, have been able to deduct the full cost of their newly purchased trucks, SUVs, and other automobiles eligible under the reinstated tax law. Many of these clients are realizing a more than 50% reduction in their tax liability, and some are eliminating it entirely.
Examples of property eligible for bonus depreciation include: equipment, furniture, qualified property improvements and vehicles over 6,000 pounds. Vehicles under 6,000 pounds are still eligible but are subject to certain limitations. Tax professionals are urging their clients to take advantage of this fully reinstated bonus depreciation while they can. The law has been permanently reinstated, but with the constant changes in American politics, there is no certainty that this law will still be here after the next election cycle.
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