Bonus depreciation has provided businesses, particularly manufacturers, with a powerful tax-saving opportunity by allowing them to deduct a large portion of qualified asset costs in the year of purchase. However, this deduction may phase out, making strategic planning essential for capital investment decisions.
Under Section 168(k) of the Internal Revenue Code, bonus depreciation applies to qualifying property with a useful life of 20 years or less, including machinery, equipment, vehicles, and software—common assets in the manufacturing sector. The Tax Cuts and Jobs Act (TCJA) initially permitted businesses to deduct 100% of the cost of eligible assets placed in service after September 27, 2017. However, this benefit is being phased out over time. The deduction rate dropped to 80% in 2023, 60% in 2024, and 40% in 2025. Unless new legislation extends or reinstates it, bonus depreciation will only be 20% in 2026 and will phase out entirely starting in 2027.
This reduction means manufacturers must reassess the timing and financial impact of planned capital investments. In 2025, businesses can deduct 40% of the cost of eligible assets in the first year, with the remaining 60% depreciated over the asset’s useful life using standard methods. For example, a $100,000 equipment purchase placed in service in 2025 yields a $40,000 immediate deduction. By contrast, putting the same asset in service just a year later in 2026 would result in only a $20,000 first-year deduction, cutting the immediate tax benefit in half and further delaying cost recovery. The remaining $80,000 would be depreciated over time, making early planning essential for manufacturers looking to optimize cash flow and tax efficiency.
Looking Ahead: Potential Legislative Changes
Under the House version of the “One Big Beautiful Bill,” bonus depreciation would be extended through 2029, or 2030 for certain aircraft and long production period property. The proposed legislation would restore 100% bonus depreciation for qualified assets acquired and placed in service on or after January 20, 2025, and before January 1, 2030.
However, this legislation is not yet law and could change as it moves through the Senate. While a return to full bonus depreciation is possible, manufacturers should continue planning under current law and remain ready to adjust strategies based on the outcome.
For now, bonus depreciation remains a valuable tool for managing taxable income. With uncertainty surrounding its future, manufacturers face a narrow window to capture meaningful tax benefits before they potentially disappear. Whether you invest now under current rules or wait to see if new legislation restores full deductions, a proactive tax strategy is important. Strategic planning is key to preserving deductions and maximizing tax savings. Contact your Stephano Slack tax manager or partner at 610-687-1600 or email taxinfo@StephanoSlack.com.
Author Robert Radzinski, CPA, manager, oversees tax compliance for businesses and high-net-worth individuals. Rob can be contacted at 610-687-1600 or rradzinski@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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