Expanded Planning Opportunities Under OBBBA for Equipment and Vehicle Purchases

The One Big Beautiful Bill Act made several significant changes to the rules governing depreciation and expensing that business owners should consider when acquiring or selling capital assets. These changes enhance short-term deductions while creating additional layers of decision-making regarding long-term tax consequences.

The most impactful update is the reinstatement of 100 percent bonus depreciation for qualifying property placed in service after January 19, 2025. This change reverses the previously scheduled phaseout, which would have reduced bonus depreciation to 40 percent in 2025. Under OBBBA, the full expensing allowance is now permanent. Taxpayers can deduct the entire cost of new or used qualifying property—without the income limitations that apply to Section 179.

Additionally, OBBBA increases the Section 179 cap for heavy SUVs to $31,300 for the 2025 tax year. This provision applies to vehicles with a gross vehicle weight rating (GVWR) between 6,001 and 14,000 pounds, a category that includes many full-size pickup trucks, commercial vans, and SUVs commonly used in service businesses, trades, and real estate.

The interplay between Section 179 and bonus depreciation offers a flexible opportunity to maximize deductions. The standard approach is to apply Section 179 first to qualifying assets until the deduction limit is reached. The remaining asset cost can then be recovered using 100 percent bonus depreciation, allowing businesses to fully expense the purchase in the year the property is placed in service.

A business that purchases $3 million in qualifying equipment could apply the $2.5 million Section 179 deduction first (subject to income limitations) and then apply bonus depreciation to the remaining $500,000 of cost. However, taxpayers should still model the long-term consequences of this strategy. Both Section 179 and bonus depreciation are subject to ordinary income recapture under Section 1245 when the property is later sold. Furthermore, the five-year lookback rule under Section 1231 may apply if prior-year losses exist, reducing the benefit of capital gain treatment.

A practical example illustrates how these provisions affect long-term tax results. Suppose a business purchases a $65,000 heavy SUV in 2025 that qualifies for both the $31,300 Section 179 cap and 100 percent bonus depreciation. The taxpayer elects Section 179 for the first $31,300 and uses bonus depreciation to deduct the remaining $33,700, bringing the adjusted basis to zero in the year of purchase.

Four years later, the business sells the vehicle for $40,000. Because the asset was fully depreciated, the entire $40,000 is considered gain. Under Section 1245, this gain is taxed as ordinary income, not capital gain, because it is a recovery of prior depreciation deductions. Section 1231 does not apply because the entire gain is attributable to previously deducted amounts and is fully recaptured under Section 1245.

This example highlights the trade-off involved in immediate expensing.  While the business received a significant up-front deduction, the later sale triggered ordinary income that must be recognized in the year of disposition.

The expanded provisions under OBBBA give businesses more tools to manage taxable income, but they also raise the stakes for forward planning. Businesses must consider not just what is deductible today, but how those deductions will be treated in the future when the asset is sold or traded in. A gain that arises from the sale of property fully expensed under Section 179 or bonus depreciation will often generate ordinary income, not capital gain, unless the gain exceeds the amount of depreciation previously claimed.

This makes the strategic combination of depreciation elections, holding periods, and sale timing essential. Section 179 and bonus depreciation provide front-loaded benefits that improve cash flow and reduce current-year liability. However, taxpayers who are planning for a future asset sale, business exit, or transition event should also weigh the potential for ordinary income recognition in the disposition year.

Business owners considering large asset purchases should coordinate with their CPAs to align depreciation strategy with long-term financial objectives. The new flexibility under OBBBA is valuable, but only when paired with a complete understanding of recapture, character, and transaction timing.

If you are buying or selling assets, I can help you plan for both the deductions and the tax consequences. Contact me to set up an initial consultation.