OB3 Act: Business Expensing Enhanced
Several provisions allow full deductions for certain 2025 and forward expenses
President Trump signed the One Big Beautiful Bill Act into law on July 4, 2025. This article is one in a series on the tax provisions in the One Big Beautiful Bill Act.
I am doing a two-hour webinar for Compass Tax Educators on the provisions affecting tax year 2025 (there are many!) on July 11, 2025, at 2:00 pm ET / 11:00 am PT.
The Senate version of the One Big Beautiful Bill Act (OB3), which ultimately became law, prioritized providing permanent opportunities for businesses to deduct certain expenditures fully.
100% Bonus Depreciation
The additional first-year depreciation deduction is made permanent, and increased to 100% for property acquired and placed in service after January 19, 2025, and for specified plants planted or grafted after January 19, 2025.
A taxpayer can elect to have a 40% bonus depreciation rate for most property placed in service during the first tax year ending after January 19, 2025.
§179 Expensing
The maximum amount a taxpayer can expense under §179 each tax year is permanently increased to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million. These amounts are inflation-adjusted in future tax years. This change applies to tax years beginning after December 31, 2024.
Research & Experimental Expenses (aka R&D)
Since tax year 2022, taxpayers have had to capitalize and amortize domestic research expenses (over five years) and foreign research expenses (over 15 years).
A taxpayer may fully deduct all domestic research expenses for tax years beginning after December 31, 2024, or elect to amortize them for up to 60 months. The amortization election must be made by the tax return due date (including extensions). Foreign research expenses continue to be amortized over 15 years.
Two transition rules provide relief for taxpayers who previously capitalized domestic research expenses:
A taxpayer meeting the §448(c) gross receipts test may elect to apply the new deduction provision to tax years beginning after December 31, 2021, and file amended returns for each tax year affected by the election. The taxpayer can make the election by July 4, 2026, in a manner to be determined by the IRS.
A taxpayer may elect to deduct the remaining capitalized expenses in the first tax year beginning after December 31, 2024, or ratably over the two-year tax period starting with the first tax year beginning after December 31, 2024.
Qualified Production Property
The new law allows taxpayers an additional first-year depreciation deduction of 100% of the adjusted basis of qualified production property. Qualified production property is nonresidential real property (i.e., 39-year property) in the United States (or any possession) used for the manufacturing, production, or refining of a qualified product.
Qualified production property does not include the portion of any nonresidential real property used for offices, administrative services, lodging, parking, sales activities, software development or engineering activities, or other functions unrelated to manufacturing, production, or refining of tangible personal property. It also does not include any property to which the alternative depreciation system (ADS) applies, or any food or beverage prepared in the same building as a retail establishment in which such property is sold.
The qualified production property must be placed in service after July 4, 2025, and before January 1, 2031; however, its construction must begin after January 19, 2025, and before January 1, 2029.