Section 179 vs. Bonus Depreciation in 2025: Which Tax Break Is Right for Your Business?

As a business owner, few tax strategies offer as much immediate cash-flow relief as accelerating depreciation on equipment, vehicles, machinery, software, and certain improvements. Two of the most powerful tools available are Section 179 expensing and bonus depreciation (also known as special depreciation allowance under Section 168(k)).

Thanks to the One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, both provisions have been significantly enhanced for the 2025 tax year, making it one of the most favorable years in recent memory for upfront deductions.

This article compares the two side-by-side, highlights 2025-specific rules, and explains when to use each (or both together) to maximize your tax savings.

What Is Section 179 Expensing?

Section 179 allows businesses to deduct the full purchase price of qualifying property in the year it is placed in service, rather than depreciating it over several years. It's designed primarily for small and mid-sized businesses.

Key 2025 Limits (after OBBBA enhancements):

• Maximum deduction: $2,500,000

• Phase-out threshold: Begins when total qualifying purchases exceed $4,000,000 (deduction reduces dollar-for-dollar above this amount; fully phases out around $6.5 million in most cases)

• Deduction is limited to your taxable business income (cannot create or increase a net operating loss)

• Applies to both new and used property

• You must elect to use it (it's optional and selective—you choose which assets to apply it to)

Qualifying property includes tangible personal property (machinery, equipment, computers, off-the-shelf software), certain vehicles, and qualified improvement property (e.g., interior improvements to nonresidential buildings like HVAC, roofing, or security systems).

Special note for vehicles: Heavy SUVs/trucks (over 6,000 lbs GVWR) have favorable treatment, but lighter passenger vehicles face stricter luxury auto limits.

What Is Bonus Depreciation?

Bonus depreciation lets businesses deduct a percentage of the cost of qualifying property in the first year. Unlike Section 179, it's generally automatic unless you elect out.

Key 2025 Rules (after OBBBA restoration):

• 100% deduction for qualifying property acquired and placed in service after January 19, 2025

• For property acquired before January 20, 2025 (or under binding contracts before that date), the old phase-down applies: 40% for most assets placed in service in 2025

• No dollar limit on the total deduction

• No taxable income limitation — it can create or increase a net operating loss (NOL) that can be carried forward

• Applies to both new and used property

• Covers a broad range of assets: tangible property with a recovery period of 20 years or less, qualified improvement property, computer software, and more

How to Use Both Together (The Best Strategy for Most Businesses)

The IRS generally requires applying Section 179 first, then bonus depreciation to any remaining basis.

Example (2025): Your business purchases $3,800,000 in qualifying equipment and machinery in March 2025 (all placed in service after Jan 19).

1. Apply Section 179 to $2,500,000 → immediate deduction of $2,500,000

2. Remaining basis: $1,300,000 → take 100% bonus depreciation → additional $1,300,000 deduction

3. Total first-year deduction: $3,800,000 (full expensing)

This combination is especially powerful for mid-sized businesses investing heavily in growth.

Pro Tip: If you have lower taxable income this year and want to preserve deductions for future high-income years, you can elect out of bonus depreciation or limit Section 179. Work with your CPA to model scenarios.

When to Choose One Over the Other

• Prefer Section 179 if:

  • Your total purchases are well under $4M

  • You want to selectively apply the deduction (e.g., to certain assets or departments)

  • You have taxable income limits and don't want to create an unused NOL

• Prefer Bonus Depreciation if:

  • Purchases exceed Section 179 limits

  • You have very high spending and want unlimited expensing

  • You can benefit from creating an NOL to carry forward

• Use Both for maximum savings on large investments.

Important 2025 Reminders

• Timing is critical — for 100% bonus, assets generally must be acquired and placed in service after January 19, 2025. Early-year purchases may only get 40%.

• State taxes often do not fully conform to federal rules — check your state.

• Always maintain good records: purchase dates, placed-in-service dates, business-use percentage, and invoices.

• These rules can be complex, especially with vehicles, real property improvements, and multi-state operations.

Bottom Line

In 2025, thanks to OBBBA, businesses have some of the most generous immediate expensing rules in decades. Whether you're a small contractor buying tools and a truck or a manufacturer investing millions in machinery, Section 179 and bonus depreciation (often used together) can dramatically reduce your current-year tax bill and improve cash flow for reinvestment.

Consult a qualified CPA or tax advisor to determine the optimal strategy for your specific situation — the right combination can save tens or hundreds of thousands in taxes.

This article is for informational purposes only and is not tax advice. Tax laws are complex and subject to change. Always consult a professional for your individual circumstances.