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The deadlines for filing 2025 tax returns (or extensions) are fast approaching. Although most tax planning moves must be completed by December\u00a031 of the tax year, there are some decisions you can make when filing your return that can save taxes now or in the future. One such decision is whether to claim accelerated depreciation breaks.<\/p>\n
Depreciation basics<\/strong><\/p>\n For assets with a useful life of more than one year, the cost generally must be depreciated over a period of years (unless accelerated depreciation breaks are available). In other words, taxpayers can deduct only a portion of the asset\u2019s cost each year over the depreciation period.<\/p>\n The depreciation period depends on the type of asset, ranging from three years (such as for software and small tools) to 39 years (for commercial real estate). The Modified Accelerated Cost Recovery System (MACRS) provides larger deductions in the early years of an asset\u2019s life than the straight-line method.<\/p>\n In many cases, assets can be depreciated much more quickly under special tax breaks. Some of these breaks were enhanced by last year\u2019s One Big Beautiful Bill Act (OBBBA).<\/p>\n First-year bonus depreciation<\/strong><\/p>\n Under the OBBBA, 100% first-year bonus depreciation can be claimed on 2025 tax returns for qualified assets that were acquired after January\u00a019, 2025, and placed in service in 2025.<\/p>\n Eligible assets include:<\/p>\n First-year bonus depreciation can also be claimed for real estate qualified improvement property (QIP). QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the date the building was placed in service. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don\u2019t count as QIP and usually must be depreciated over 39 years.<\/p>\n The first-year bonus depreciation percentage is 40% for qualified assets acquired on or before January\u00a019, 2025, and placed in service in 2025.<\/p>\n Bonus depreciation is automatically applied to eligible assets unless you elect out of it. However, you can elect out of it only on an asset class basis. For example, you can elect out of it for all<\/em> three-year property, but you can\u2019t elect out of it for just one specific three-year asset.<\/p>\n Section 179 expensing election<\/strong><\/p>\n Sec. 179 expensing allows small businesses to write off the full cost of 2025 eligible assets. For tax years beginning in 2025, the maximum Sec.\u00a0179 deduction is $2.5\u00a0million (double the pre-OBBBA limit).<\/p>\n Eligible assets include:<\/p>\n For nonresidential real property, Sec. 179 deductions are also allowed for qualified expenditures for:<\/p>\n Finally, eligible assets include depreciable personal property used predominantly to furnish lodging, such as furniture and appliances in a property rented to transients.<\/p>\n In addition to the annual expense limit, Sec. 179 expensing is subject to a couple of other limits that don\u2019t apply to bonus depreciation. First, the deduction is phased-out dollar for dollar if you put more than $4\u00a0million of qualifying assets into service last year. Second, Sec.\u00a0179 deductions can\u2019t cause an overall business tax loss. The Sec.\u00a0179 deduction limits can be tricky if you own an interest in a pass-through business entity.<\/p>\n That said, claiming Sec. 179 expensing can be beneficial for assets not eligible for 100% bonus depreciation or if you want to immediately deduct the cost of some, but not all, assets in a particular asset class that is also eligible for bonus depreciation.<\/p>\n Depreciation deduction strategies<\/strong><\/p>\n Claiming the maximum depreciation deductions you can on your 2025 income tax return will generally provide the greatest 2025 tax savings. Among other benefits, this can boost cash flow and provide more funds for further investment in the business.<\/p>\n But there are circumstances where it may be better to depreciate assets over a period of years. For example, the Section\u00a0199A qualified business income (QBI) deduction for pass-through businesses can be up to 20% of an owner\u2019s QBI. Because of the income limitations on this deduction, claiming big first-year depreciation deductions can reduce QBI and lower or even eliminate your allowable QBI deduction.<\/p>\n Depreciating assets over a period of years can also be beneficial if you expect to be subject to higher tax rates in the future, such as if you may be in a higher tax bracket or lawmakers increase rates. When you claim 100% bonus depreciation or Sec.\u00a0179 expensing today, you\u2019re eliminating your depreciation deductions for those assets in the future. And deductions save more tax when tax rates are higher.<\/p>\n Time to get started<\/strong><\/p>\n We can identify which depreciation breaks you\u2019re eligible for, review your overall tax situation and help determine whether it will be beneficial for you to maximize depreciation-related breaks on your 2025 tax return. We can also strategize with you on tax planning for 2026 asset investments. Please contact us to get started.<\/p>\n \u00a9 2026<\/em><\/p>\n <\/body> The deadlines for filing 2025 tax returns (or extensions) are fast approaching. Although most tax planning moves must be completed by December\u00a031 of the tax year, there are some decisions you can make when filing your return that can save taxes now or in the future. One such decision is whether to claim accelerated depreciation […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,16],"tags":[8,11,12],"class_list":["post-17487","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-small-business-tax","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17487"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17487\/revisions"}],"predecessor-version":[{"id":17488,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17487\/revisions\/17488"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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