The Big Beautiful Tax Act (BBTA), formally known as the 2025 Budget Reconciliation Act or One Big Beautiful Bipartisan Act (OBBBA), introduces significant changes to the U.S. tax code, impacting small businesses, corporations, and multinationals alike. Signed into law in 2025, this legislation refines existing tax provisions and introduces new rules to balance economic growth, competitiveness, and fiscal responsibility. In this blog post, we’ll dive into the details that reshape how businesses approach capital investments and innovation. Key provisions for business owners include the reinstatement of 100% bonus depreciation for qualifying assets placed in service from January 19, 2025, through December 31, 2029, and the restoration of immediate expensing for domestic Research and Development (R&D) expenses. These powerful tax incentives allow businesses to immediately deduct the full cost of eligible assets and R&D expenses in the year they are incurred, rather than spreading deductions over several years. Here’s what you need to know about these game-changing opportunities.
What is 100% Bonus Depreciation?
Bonus depreciation allows businesses to deduct a substantial portion of the cost of qualifying assets in the year they are placed in service. Under the 2025 Reconciliation Act, this deduction has been restored to 100% for assets acquired and placed in service after January 19, 2025, and before January 1, 2030. This applies to a wide range of assets, including machinery, equipment, and certain real property improvements like driveways, sidewalks, landscaping, and fences, as well as building components with a useful life of less than 20 years.
This provision is a significant shift from the previous phase-down schedule, which had reduced bonus depreciation to 40% for 2025 under the Tax Cuts and Jobs Act (TCJA). The reinstatement of 100% bonus depreciation is a major win for businesses looking to optimize cash flow and invest in growth.
R&D Tax Benefits
The 2025 Reconciliation Act also restores immediate expensing for domestic R&D expenses under a new Section 174A, effective for tax years beginning after December 31, 2024, through December 31, 2029. This reverses the TCJA’s requirement to amortize domestic R&D expenses over five years, which had been in place since 2022. Key details include:
- Retroactive Relief for Small Businesses: Businesses with average annual gross receipts of $31 million or less can retroactively apply immediate expensing to R&D expenses from tax years beginning after December 31, 2021, allowing amendments to prior returns (2022–2024) for immediate deductions.
- Catch-Up Deduction: All taxpayers can elect to deduct the remaining basis of previously capitalized domestic R&D expenses from 2022–2024 over one or two years starting in 2025, boosting cash flow.
- Foreign R&D: Amortization over 15 years for foreign R&D expenses remains unchanged.
- R&D Tax Credit (Section 41): The Act does not alter the R&D tax credit’s structure, which provides approximately $0.13 per dollar spent on qualified research. However, adjustments to Section 280C prevent duplicate benefits when claiming the credit alongside immediate expensing, ensuring compliance. The IRS’s proposed changes to Form 6765 may increase documentation requirements for credit claims.
These R&D provisions encourage innovation, particularly in industries like technology and manufacturing, with the National Association of Manufacturers noting that every $1 billion in R&D spending supports 17,000 jobs.
Key Benefits for Businesses
The 2025 Reconciliation Act offers several advantages for businesses:
- Immediate Cash Flow Boost: Immediate deductions for both qualifying assets and R&D expenses reduce taxable income, freeing up capital for reinvestment or operational needs.
- Encourages Investment and Innovation: The ability to write off the full cost of assets and R&D expenses upfront incentivizes businesses to invest in new equipment, technology, infrastructure, and research, enhancing productivity and competitiveness.
- Cost Segregation Opportunities: For real estate investors, cost segregation studies can maximize benefits by identifying property components eligible for bonus depreciation, potentially yielding significant first-year deductions.
Qualifying Assets for Bonus Depreciation
To take advantage of the 100% bonus depreciation, assets must meet specific criteria:
- Eligible Property: Includes tangible personal property with a recovery period of 20 years or less, such as machinery, equipment, and certain improvements to nonresidential real property.
- Placed in Service: The property must be acquired and placed in service (ready and available for its intended use) between January 19, 2025, and December 31, 2029. For certain longer-production-period property and aircraft, the deadline extends to January 1, 2031.
- Qualified Production Property (QPP): The Act introduces a 100% depreciation allowance for QPP, including nonresidential real property used in manufacturing, production, or refining of tangible personal property in the U.S., with construction or acquisition after January 19, 2025.
Strategic Considerations
To maximize these opportunities, business owners should:
- Plan Acquisitions and R&D Investments: Time asset purchases and R&D spending to fall within the bonus depreciation and Section 174A windows to maximize tax savings. Consider accelerating planned investments to leverage the 2025 start date.
- Conduct Cost Segregation Studies: For real estate, a cost segregation study can identify components eligible for bonus depreciation, potentially increasing first-year deductions significantly. For example, a $400,000 depreciable basis on a rental property could yield a $150,000 deduction with proper segregation.
- Enhance R&D Documentation: With potential IRS scrutiny on R&D tax credit claims, maintain detailed records of qualified research activities and expenses to substantiate claims under Section 41.
- Consult Tax Professionals: Work with a tax advisor to ensure compliance with IRS requirements and optimize your depreciation and R&D strategies. The Act’s provisions are complex, and professional guidance is critical.
Limitations and Caveats
While these provisions are powerful, there are limitations to consider:
- No Retroactive Relief for Bonus Depreciation: The 100% bonus depreciation does not apply to assets placed in service before January 19, 2025. Assets from 2023 and 2024 remain subject to prior rates of 80% and 60%, respectively.
- R&D Retroactivity Limited to Small Businesses: Only businesses with $31 million or less in gross receipts qualify for retroactive R&D expensing for 2022–2024.
- State Conformity: Some states may not conform to federal bonus depreciation or R&D expensing rules, affecting state tax obligations. Check with your tax advisor for state-specific policies.
- Section 179 Alternative: The Act increases the Section 179 expensing limit to $2.5 million with a $4 million phase-out threshold for 2025, adjusted for inflation. However, Section 179’s limitations, such as not creating a loss for certain entities, may make bonus depreciation or R&D expensing more attractive. We will cover this in more detail in our next blog post.
Conclusion
The 2025 Reconciliation Act’s reinstatement of 100% bonus depreciation and immediate R&D expensing offers significant opportunities for businesses to enhance cash flow, accelerate growth, and drive innovation. By allowing full deductions for qualifying asset costs and domestic R&D expenses in the year they are incurred, these provisions encourage investment in equipment, technology, real estate improvements, and research. To maximize benefits, businesses should strategically plan acquisitions and R&D spending, consider cost segregation studies, maintain robust R&D documentation, and consult tax professionals to ensure compliance and optimize savings.
Reach out to Archer Lewis to discover how your business can leverage these new changes and develop a customized plan to optimize your tax benefits. Even if you’re partnered with another accounting firm, we can collaborate with you and your current firm to secure these Tax Credits for you.
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