All About Timing: Evolving Depreciation Deductions and Tax Incentives in the Wake of OBBB

Article | August 15, 2025

Authored by Aprio

At a glance

• The main takeaway: The One Big Beautiful Bill introduces substantial updates to various tax provisions, many of which extend or reshape elements of the Tax Cuts and Jobs Act and opens new considerations for asset depreciation and construction planning.
• The impact on your business: These changes may require taxpayers to revisit their cost segregation strategies and building timelines to fully capitalize on the available tax incentives for energy-efficient buildings and accelerated depreciation.
• Next steps: An expert advisor will proactively monitoring tax legislation developments and are prepared to help you navigate the potential impacts the new legislation may have on your business.

The full story:

On July 4th the President signed into law H.R.1, the legislation commonly known as the One Big Beautiful Bill (OBBB). This legislation extended, modified, or made permanent many of the tax provisions which were initially enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017. There are several provisions impacted by the enactment of this bill, including the reinstatement and improvement of several depreciation provisions and tax benefits pertaining to both commercial and residential building development.

This article outlines recent updates to federal tax incentives that affect energy-efficient construction and capital investment strategies, and discusses how these changes impact real estate owners, developers, and manufacturers through accelerated depreciation and project planning opportunities.

Reinstatement of Bonus Depreciation

The first amongst the modified depreciation provisions is the reinstatement of bonus depreciation at 100% for qualified property acquired after January 19th, 2025.

Bonus depreciation is a unique tax rule that allows business taxpayers to expense a percentage of an eligible asset’s cost in the first year it is purchased, contrary to normal depreciation rules in which businesses may be required to spread out the cost of capital purchases over many years.

Since the OBBB overturned the former phaseout plan under TCJA that was to expire in 2027, 100% of assets acquired and placed in service after January 19th can now be fully and immediately expensed from taxable income. Taxpayers who have been waiting to make capital investments or perform acquisitions can take advantage of fully expensing qualified property acquired after January 19th.

New Qualified Production Property Deduction

Manufacturers and producers can now dramatically reduce taxable income for qualifying projects with the OBBB’s new subsection to Section 168, which enables 100% expensing for qualified production property.

Qualified production property is defined as nonresidential real property located in the U.S. and must be used by the taxpayer as an integral part of a qualified production activity. A qualified production activity is one in which there is the manufacturing, production, or refining of a qualified product, and the result is a “substantial” transformation of that property.

To claim the deduction for eligible property, businesses must meet strict timing and use requirements:

• The qualified production property must be placed in service before January 1st, 2031.
• Construction must have started between January 19th, 2025 and before January 1st, 2029.
• Nonresidential real property used for offices, administrative services, parking, lodging, etc. are not eligible.

Further, qualifying property can be tricky. For example, acquisitions can only qualify under strict “original use” rules. If the property is no longer used for a qualified production activity, the property is subject to the recapture rules of IRC §1245.

As we wait for the Secretary of the Treasury to provide guidance that defines “substantial” transformation and the change in use when the property is no longer used for a qualified production activity, taxpayers should prepare with careful, long-term planning alongside a trusted advisor to maximize tax savings and ensure compliance.

Sunset of Energy Efficient Construction Tax Incentives

The OBBB also announced the expiration of Section 179D, an energy efficient commercial buildings deduction, and Section 45L, a new energy efficient home tax credit. Both incentives will sunset for projects starting on or after June 30th, 2026. Taxpayers engaged to build energy efficient commercial or residential buildings are encouraged to accelerate project planning and approvals to start construction before this date or risk losing substantial tax savings.

The bottom line

To maximize depreciation provisions and tax benefits established under the OBBB, taxpayers and businesses should identify current and upcoming projects that could qualify for §179D, §45L, bonus depreciation, or QPP, and extensively plan timelines to ensure construction start dates meet eligibility. Tax impact models can also be used to help determine whether construction projects or purchases should be accelerated.

It is essential for taxpayers and businesses to review these amendments with a trusted tax advisor.

Please connect with your advisor if you have any questions about this article.