Bonus depreciation is back at 100%, the QBI deduction will not expire, and Section 179 is permanently indexed to inflation. Four provisions from the One Big Beautiful Bill Act that change how small business owners should approach equipment purchases and pass-through tax planning.
The One Big Beautiful Bill Act, signed July 4, 2025, makes four critical changes for small business owners: 100% bonus depreciation is permanently restored for assets acquired after January 19, 2025 — reversing the TCJA phase-down that would have limited 2026 to 20%; the 20% QBI Section 199A deduction is permanent with no expiration; the Section 179 cap rises to $2.56M for 2026; and the business interest deduction reverts to the more favorable EBITDA-based calculation. If you bought equipment in 2025 or 2026, your depreciation picture is materially different from prior-law projections.
The One Big Beautiful Bill Act was signed into law on July 4, 2025 — the largest tax package enacted since the Tax Cuts and Jobs Act of 2017. For small business owners and self-employed filers, four provisions are immediately relevant to how you structure equipment purchases, manage pass-through income, and plan your 2025 and 2026 taxes.
Under the TCJA phase-down schedule, bonus depreciation was declining by 20 percentage points each year: 80% (2023), 60% (2024), 40% (2025), 20% (2026), and 0% (2027). The One Big Beautiful Bill reversed that entire phase-down.
Effective for assets acquired after January 19, 2025, bonus depreciation under Section 168(k) is permanently restored to 100%. This means:
For most equipment buyers, this is the single most impactful change in the Act. If your tax projections for 2025 or 2026 were built on TCJA phase-down assumptions, run the numbers again.
The Section 199A qualified business income (QBI) deduction — which allows eligible pass-through business owners to deduct up to 20% of their qualified business income — was scheduled to expire after the 2025 tax year. OBBB made it permanent with no sunset date.
What the permanency means in practice:
If you operate as an S-Corp, the QBI deduction interacts directly with your reasonable compensation election — higher W-2 wages raise the W-2 wage limitation ceiling for QBI purposes but also increase self-employment and payroll taxes. For a detailed breakdown of how to calibrate that trade-off, see S-Corp Formation and Funding Implications. For a broader overview of pass-through tax mechanics, see Small Business Tax Basics for First-Time Filers.
Section 179 already allowed immediate expensing of qualifying business property, but its caps were set by statute and not automatically adjusted for inflation. OBBB changed both the cap and the indexing:
Section 179 differs from bonus depreciation in one critical way: it cannot create a net operating loss. Bonus depreciation has no taxable income ceiling and can extend or create an NOL that carries forward. Most businesses use Section 179 first on qualifying property, then apply bonus depreciation to any remaining cost basis. For owners with annual equipment purchases well below the $2.56M cap, the practical difference between the two tools is minimal — both deliver the same first-year write-off.
This provision is less widely discussed but matters for capital-intensive operations — equipment-heavy businesses, manufacturers, and companies carrying significant SBA or equipment-term debt — that also run high depreciation deductions.
Under the TCJA as applied from 2022 through OBBB's passage, the 30% limit on deductible business interest was calculated using EBIT. Depreciation and amortization were excluded from adjusted taxable income (ATI), making the ceiling more restrictive for any business with large depreciation. The practical effect: businesses with substantial equipment debt and high depreciation could lose deductibility on a portion of their interest expense each year.
OBBB restored the EBITDA-based calculation for tax years beginning in 2025 and later. Depreciation and amortization are added back to ATI before the 30% cap is applied. For businesses that were previously hitting the interest deduction ceiling due to the EBIT-only calculation, this change meaningfully increases deductible interest — reducing taxable income without any change to actual debt or spending.
For businesses that provide childcare benefits — through a company-operated or contracted childcare facility, direct payments to a childcare provider, or employee childcare resource-and-referral services — the employer childcare tax credit under Section 45F expanded significantly:
This change is most relevant to businesses with 10–50 employees where childcare benefits are part of a retention strategy. The prior $150,000 ceiling was a meaningful cap for midsized operators; the $500,000 threshold substantially increases the available credit.
100% bonus depreciation changes the after-tax economics of every equipment purchase. At a 21% effective federal rate, a $100,000 equipment acquisition produces a $21,000 first-year tax deduction — versus $2,000 under the old 20% TCJA rate. The effective after-tax cost of the asset drops from approximately $98,000 to $79,000 in Year 1.
For businesses considering equipment acquisitions in 2026, this strengthens the case for buying over leasing — particularly for assets that retain value over time. If you need financing to structure an equipment purchase, our funding platform connects you with lender partners across equipment financing, term loans, and SBA 7(a). You can start an equipment financing application. All financing is subject to lender partner approval.
The QBI deduction's permanency also resolves a planning uncertainty that had kept many S-Corp elections deferred. The W-2/distribution optimization no longer depends on annual legislative renewal — owners who delayed entity structure review because of QBI sunset risk now have a stable baseline for that analysis.
For the retirement-planning dimension of self-employment tax strategy — including how SEP-IRA, SIMPLE IRA, and Solo 401(k) contributions interact with QBI and overall taxable income — see Choosing the Right Retirement Plan for Self-Employed Owners in 2026.
This content is for educational purposes only and does not constitute tax or legal advice. Consult a qualified CPA before amending prior returns, changing entity structure, or making depreciation elections under OBBB.
Yes, if the asset was acquired after January 19, 2025 — the retroactive effective date in the One Big Beautiful Bill. Assets placed in service between January 20, 2025 and December 31, 2025 are eligible for 100% bonus depreciation, regardless of what the prior TCJA phase-down schedule said (40% for 2025). If you already filed your 2025 return using the lower TCJA rate, you may be able to amend and capture the additional deduction. Consult a CPA before amending a filed return.
Yes. Qualifying S-Corp shareholders can deduct up to 20% of their qualified business income under Section 199A. OBBB made this permanent. W-2 wage and UBIA-of-qualified-property limitations still apply at higher income levels; specified service trades or businesses (SSTBs — law, consulting, accounting, financial services, and others listed in Section 1202) face additional phase-out rules above inflation-adjusted income thresholds. The new $400 minimum deduction introduced by OBBB applies to taxpayers with at least $1,000 of QBI from businesses in which they materially participate.
Both allow first-year expensing of qualifying business property, but they have different ceilings and income limitations. Section 179 is capped at $2.56M for 2026 (phase-out begins at $4.09M of property placed in service) and cannot reduce taxable income below zero — it cannot create a net operating loss. Bonus depreciation is uncapped and can create or extend a net operating loss (NOL) that carries forward to offset future income. Most businesses use Section 179 first, then apply bonus depreciation to any remaining asset basis. For most SMB owners with equipment purchases well below $2.56M, both tools deliver the same first-year write-off.
Under the TCJA as applied from 2022 through OBBB's passage, the 30% business interest deduction limit was calculated using EBIT — depreciation and amortization were excluded from adjusted taxable income (ATI). That made the ceiling harsher for businesses with high depreciation. OBBB restores the EBITDA-based calculation, adding depreciation and amortization back to ATI before applying the 30% cap. For businesses carrying equipment loans, SBA term loans, or real estate debt alongside significant depreciation deductions, this change increases the amount of interest that can be deducted in a given tax year.
The One Big Beautiful Bill Act was signed into law on July 4, 2025. Most business provisions apply to tax years beginning after December 31, 2024 (i.e., 2025 and later), with bonus depreciation specifically covering assets acquired after January 19, 2025. The QBI deduction permanency eliminates the prior sunset date of December 31, 2025, meaning the deduction is available for 2026 and all subsequent tax years without further legislative action. The IRS has published guidance on each provision at irs.gov/newsroom/one-big-beautiful-bill-provisions.