NEWS & RESOURCES

Authored by: Nathan Cacka, CPA, Wealth Advisor, Senior Manager

Depreciation may not be the most exciting topic in tax planning, but it can have a significant impact on a business’s cash flow, tax liability, and long-term planning strategy. Recent updates under the OBBB legislation introduced several important changes to depreciation rules, creating new opportunities and new complexities for business owners.

Whether your business is investing in equipment, vehicles, improvements, or production facilities, understanding how depreciation works can help you make more informed financial decisions.

But first: what is depreciation?

Depreciation allows businesses to spread the cost of long-term assets over the years those assets are expected to be used. Instead of deducting the entire cost of a major purchase in one year, depreciation allocates portions of that expense across multiple years. Examples of depreciable assets include:

• Machinery and equipment
• Office furniture
• Commercial buildings
• Vehicles
• Technology and software

Depreciation reflects how assets lose value over time while also providing businesses with annual tax deductions.

Why does depreciation matter?

Depreciation affects more than just bookkeeping. It plays an important role in:

• Reducing taxable income
• Managing cash flow
• Supporting business expansion decisions
• Improving financial forecasting
• Planning equipment or facility upgrades

The timing of depreciation deductions can significantly impact a business’s overall tax strategy, especially for growing companies making large capital investments.

How does depreciation typically work?

Most business assets are assigned a “useful life” by the IRS. Depending on the type of asset, deductions may be spread across periods such as 5, 7, 15, or even 39 years.

Historically, businesses have also been able to accelerate deductions through:

• Bonus depreciation, which allows a percentage of an asset’s cost to be deducted upfront
• Section 179 expensing, which permits immediate deductions for qualifying purchases up to certain limits

While these tools can provide valuable tax savings, the rules surrounding qualification, timing, and limitations can become complicated quickly.

Key Changes Under OBBB

The OBBB legislation introduced several notable depreciation-related updates businesses should understand.

Revised Bonus Depreciation

The law adjusted the percentage available for upfront bonus depreciation deductions and revised qualification requirements for certain assets. Businesses making significant purchases should carefully evaluate how these updated rules apply to future acquisitions.

Increased Section 179 Expensing Limits

OBBB expanded Section 179 immediate expensing opportunities, allowing more businesses — particularly small and mid-sized companies — to deduct qualifying asset purchases in the year they are placed into service.

This change may create additional flexibility for businesses investing in equipment, technology, or operational improvements.

New Qualified Production Property (QPP) Expensing

One of the more significant additions is the introduction of Qualified Production Property (QPP) expensing. Certain nonresidential real property used in qualified production activities may now qualify for 100% expensing, even when the property would traditionally fall under a 39-year depreciation schedule.

However, these provisions include specific eligibility requirements, temporary incentives, and potential recapture rules that businesses should review carefully before making assumptions about qualification.

Additional Compliance Requirements

The updated law also introduced new compliance considerations, including:

• Rules tied to signed contracts and placed-in-service dates after January 19, 2025
• Related-party limitations for bonus depreciation claims

Because timing and documentation matter significantly, businesses should maintain thorough records when making qualifying purchases or entering contracts.

What This Means for Businesses

For many businesses, these depreciation updates may create opportunities to:

• Improve short-term cash flow
• Accelerate deductions
• Reinvest tax savings into operations
• Better align capital expenditures with tax planning strategies

At the same time, the increased complexity surrounding qualification rules and compliance requirements means strategic planning is more important than ever.

Depreciation rules continue to evolve, and the recent OBBB changes introduced meaningful updates that could impact businesses of all sizes. Understanding how these provisions apply to your specific situation can help maximize available tax opportunities while avoiding costly compliance issues.

At Cordell, Neher & Company, our team works closely with businesses to navigate changing tax laws and develop proactive strategies that support long-term success. Before making major capital investments or year-end purchasing decisions, now is an excellent time to review how depreciation planning may fit into your overall tax strategy.