With 2025 tax return deadlines approaching, now is the time to evaluate last-minute tax decisions. While most tax planning opportunities must be implemented before December 31, some important choices can still be made when filing your return.
One key decision involves whether to claim accelerated depreciation deductions. Depending on your overall tax picture, maximizing depreciation may save you money now — or it may be smarter to spread deductions into future years.
Here’s what you need to know.
Understanding the Basics of Depreciation
When a business purchases assets that will be used for more than one year, the cost generally must be deducted over time rather than all at once. This process is known as depreciation.
The recovery period depends on the type of asset. For example:
- Software and certain small tools may be depreciated over three years.
- Commercial real estate is typically depreciated over 39 years.
Under the Modified Accelerated Cost Recovery System (MACRS), businesses can claim larger deductions in the earlier years of an asset’s life compared to the straight-line method.
However, special accelerated depreciation provisions may allow even faster write-offs — particularly after enhancements made under the One Big Beautiful Bill Act (OBBBA).
First-Year Bonus Depreciation for 2025
The OBBBA restored 100% first-year bonus depreciation for qualified property acquired after January 19, 2025, and placed in service during 2025.
Eligible assets generally include:
- Depreciable personal property such as equipment, computers, and peripherals
- Transportation equipment, including certain passenger vehicles
- Commercially available software
Bonus depreciation also applies to Qualified Improvement Property (QIP). QIP refers to improvements made to the interior of nonresidential buildings after the building was first placed in service.
However, certain improvements do not qualify as QIP, including:
- Building enlargements
- Elevators and escalators
- Structural framework changes
For assets acquired on or before January 19, 2025, and placed in service during 2025, the bonus depreciation rate is 40%.
Bonus depreciation is automatic unless you elect out. Importantly, the election out must be made by asset class — not by individual asset.
Section 179 Expensing Election
Section 179 provides another powerful depreciation tool, especially for small businesses.
For tax years beginning in 2025, the maximum Section 179 deduction increases to $2.5 million — double the prior limit.
Eligible assets include:
- Equipment and computer hardware
- Certain passenger vehicles
- Commercial software
- Qualified Improvement Property
In addition, certain nonresidential real property improvements qualify, including:
- Roofs
- HVAC systems
- Fire protection and alarm systems
- Security systems
Property used predominantly to furnish lodging (such as furniture and appliances in short-term rentals) may also qualify.
However, Section 179 has important limitations:
- The deduction begins to phase out dollar-for-dollar once total qualifying asset purchases exceed $4 million.
- Section 179 cannot create or increase a net business loss.
- Additional complexity applies to pass-through entity owners.
Unlike bonus depreciation, Section 179 allows you to selectively expense certain assets within a class while depreciating others normally. This flexibility can be valuable when crafting a broader tax strategy.
Strategic Considerations: Should You Maximize Depreciation?
In most cases, claiming maximum depreciation deductions reduces taxable income and improves immediate cash flow. This can free up capital for reinvestment into the business.
However, accelerating deductions is not always the optimal move.
For example, owners of pass-through entities may qualify for the Section 199A Qualified Business Income (QBI) deduction, which can equal up to 20% of qualified income. Large first-year depreciation deductions may reduce QBI and limit or eliminate this valuable deduction.
Additionally, if you anticipate being in a higher tax bracket in future years — or if tax rates increase — spreading depreciation over time may generate greater tax savings later. Deductions are more valuable when tax rates are higher.
When you claim 100% bonus depreciation or Section 179 today, you eliminate future depreciation deductions for those assets.
The right strategy depends on your income level, future projections, entity structure, and long-term investment plans.
Plan Now for 2025 — and Beyond
Depreciation planning is not just about this year’s return. It should align with your broader tax strategy and capital investment plans for 2026 and beyond.
A comprehensive review can help determine:
- Which assets qualify for accelerated deductions
- Whether electing out of bonus depreciation makes sense
- How Section 179 interacts with your overall tax position
- Whether maximizing 2025 deductions supports long-term planning goals
If you’re unsure which approach is best, professional guidance can help you make a well-informed decision before filing.