100% Bonus Depreciation Is Permanent — Plus a New Deduction for U.S. Factories

Bonus depreciation, restored and made permanent

Under the Tax Cuts and Jobs Act, 100 percent bonus depreciation was phasing out: 100 percent through 2022, 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, and scheduled to reach zero in 2027. Each year, capital-intensive businesses lost a slice of the first-year deduction, and placed-in-service timing became a guessing game against a declining schedule.

The One Big Beautiful Bill Act (OBBBA), Public Law 119-21, signed July 4, 2025, ended the phase-down by restoring 100 percent bonus depreciation under IRC § 168(k) and making it permanent. The qualifying line is a date: property must be both acquired and placed in service after January 19, 2025 to receive the full 100 percent. Property placed in service on or before January 19, 2025 remains under the prior schedule and gets 40 percent for 2025.

The acquisition requirement is the trap. Both conditions must be satisfied — acquisition and placement in service after January 19. Property acquired under a binding written contract on or before that date does not qualify for 100 percent even if it is placed in service later in 2025; it stays at 40 percent. For assets ordered around the turn of the year, the binding-contract date can be the difference between a full deduction and a partial one. There is also an election to take 40 percent rather than 100 percent for the first taxable year ending after January 19, 2025, which can suit a company that does not want to accelerate deductions into a low-income year.

The strategic effect of permanence is the removal of the schedule itself. For years, the question was whether to rush an asset into service before the rate dropped. That pressure is gone. With 100 percent expensing permanent for qualifying property, timing decisions can be made on business merit rather than against a depreciating benefit.

A new write-off for domestic manufacturing real estate

The more novel provision is new IRC § 168(n), which has no real predecessor. It allows a taxpayer to deduct, in full and in the year placed in service, the cost of "qualified production property" — generally nonresidential real property used as a manufacturing or production facility in the United States. This is the cost of the building itself, the kind of structure that ordinarily depreciates over 39 years, deductible immediately.

The qualifying conditions are specific, and the value depends on meeting all of them:

• The property must be nonresidential real property used by the taxpayer as an integral part of a qualified production activity — the manufacturing, production, or refining of tangible personal property — located in the United States, with the taxpayer as its original user. The statute reads "production" narrowly, limited to agricultural and chemical production; "manufacturing" and "refining" are read more broadly.
• The activity must result in a substantial transformation of the property comprising the product. This term is not fully defined in the statute, which directs Treasury to issue regulations; until that guidance arrives, its boundaries carry some uncertainty.
• Construction must begin after January 19, 2025, and before January 1, 2029.
• The property must be placed in service before January 1, 2031.
• Only the portion integral to the qualified production activity qualifies. Office, administrative, lodging, parking, sales, research, and software-development space is excluded and remains on the ordinary 39-year schedule.

A recapture rule applies: if the property ceases to be used in a qualified production activity within ten years of being placed in service, the benefit can be recaptured. The election, once made, is irrevocable.

Why the two provisions work together

For a company building or expanding a U.S. factory, these provisions are complementary, and the planning is in the allocation between them. The equipment and machinery inside the plant — tangible personal property — qualifies for permanent 100 percent bonus depreciation under § 168(k). The qualifying manufacturing portion of the building shell itself can be expensed under § 168(n). The non-production portions of the building stay on the 39-year schedule.

That makes cost segregation and careful space accounting central rather than optional. The line between a "qualified production activity" portion and an excluded administrative or research portion now has a large first-year tax consequence. A facility that mixes manufacturing floor, offices, and a research wing requires a defensible allocation, because § 168(n) reaches only the production portion.

There is also a window to respect. Bonus depreciation under § 168(k) is permanent, so there is no rush on that count. But § 168(n) is not permanent: construction must begin before January 1, 2029, and the property must be in service before January 1, 2031. A domestic-manufacturing real-estate project that could qualify should be evaluated against those dates, because the building deduction — unlike bonus depreciation — has an expiration.

For completeness, OBBBA also expanded § 179 expensing, raising the maximum deduction to $2.5 million with a $4 million phase-out threshold for 2025, indexed thereafter — a useful tool for smaller asset purchases alongside the larger provisions above.

Key takeaways

• OBBBA (Pub. L. 119-21) made 100 percent bonus depreciation permanent under IRC § 168(k) for property both acquired and placed in service after January 19, 2025; property placed in service on or before that date remains at 40 percent for 2025.
• The acquisition test matters: property under a binding contract on or before January 19, 2025 stays at 40 percent even if placed in service later.
• New IRC § 168(n) allows 100 percent expensing of qualifying U.S. manufacturing real property; construction must begin after January 19, 2025 and before January 1, 2029, with the property placed in service before January 1, 2031.
• Only the production portion of a § 168(n) facility qualifies — office, research, parking, and similar space is excluded — making space allocation and cost segregation central to the deduction.

Frequently asked questions

Is bonus depreciation back to 100 percent for all of 2025?

Not for all of 2025. The full 100 percent applies to property both acquired and placed in service after January 19, 2025. Property placed in service on or before that date is subject to the prior 40 percent rate for 2025.

Can I expense the cost of a new factory building?

Potentially, under new IRC § 168(n). The building must be nonresidential real property used as an integral part of a qualified production activity in the United States, construction must begin before January 1, 2029, and it must be placed in service before January 1, 2031. Only the portion used for the production activity qualifies.

Is the new factory deduction permanent like bonus depreciation?

No. Unlike § 168(k) bonus depreciation, the § 168(n) deduction has deadlines: construction must begin before January 1, 2029, and the property must be in service before January 1, 2031. Qualifying projects should be evaluated against those dates.

Bottom line

Permanent full expensing removes the timing pressure from equipment purchases, while the new manufacturing-real-estate deduction creates a substantial — but time-limited — incentive to build domestically. Companies planning U.S. production facilities should allocate costs carefully between the two provisions and watch the § 168(n) construction and placed-in-service deadlines, which will not wait.