When you buy equipment, a vehicle, or improvements to a building, the cost usually can’t be deducted all at once like rent or supplies. Instead, it is recovered through depreciation. Used well, depreciation is one of the most valuable tools a business owner or property investor has, and the 2025 tax law made it more powerful.
Expense or capital expenditure?
Day-to-day costs that are used up within a year, such as supplies, utilities, rent, and minor repairs, are deducted in the year you pay them. Purchases that benefit your business for more than a year, such as machinery, vehicles, computers, and building improvements, are capital expenditures. Their cost is recovered over time through depreciation, unless you use one of the accelerated options below.
De minimis safe harbor: by making this election, you can immediately deduct items costing up to $2,500 per item or invoice ($5,000 if your business has audited financial statements), even if they last longer than a year.
Repairs versus improvements: a repair keeps property in normal working order and is generally deducted. An improvement adds value, extends useful life, or adapts property to a new use, and is generally capitalized.
Standard depreciation: MACRS
For tax purposes, most business assets are depreciated under the Modified Accelerated Cost Recovery System (MACRS), which assigns each type of asset a recovery period. Computers and vehicles are generally 5-year property, office furniture is generally 7-year property, land improvements such as parking lots and fencing are 15-year property, and buildings are depreciated over 27.5 years (residential rental) or 39 years (commercial). Land itself is never depreciated.
Section 179: expensing in year one
Section 179 lets you deduct the full cost of qualifying equipment, software, furniture, and certain vehicles in the year you place them in service, instead of spreading it out. Certain improvements to nonresidential buildings, such as roofs, HVAC, fire protection, and security systems, can also qualify.
The 2025 tax law raised the annual limit to $2.5 million, with the deduction phasing out once total qualifying purchases exceed $4 million. Both figures are adjusted for inflation each year.
The Section 179 deduction generally can’t exceed your business’s taxable income. Any excess carries forward to future years.
100% bonus depreciation is back
Bonus depreciation lets you deduct a percentage of the cost of qualifying new or used property in the first year. It had been phasing down, to 60% in 2024 and a scheduled 40% in 2025. The One Big Beautiful Bill Act, signed July 4, 2025, made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025.
The acquisition date matters. Property acquired under a binding contract signed before January 20, 2025 may still be limited to the lower phase-down rate, so review purchase contracts carefully.
Property with a recovery period of 20 years or less generally qualifies, including:
Equipment, computers, furniture, and machinery
Business vehicles, subject to weight and use rules
Land improvements such as paving, fencing, landscaping, and outdoor lighting
Qualified improvement property: interior improvements to an existing nonresidential building, such as walls, lighting, flooring, and ceilings. Elevators, escalators, and building enlargements are excluded.
For real estate investors, this is where cost segregation becomes powerful: a study can identify parts of a building that qualify for shorter recovery periods, and therefore for bonus depreciation.
How the pieces fit together
Section 179 is applied first, up to its limits.
Bonus depreciation is then applied to the remaining cost of qualifying property.
Any remaining cost is depreciated under MACRS over the asset’s recovery period.
Planning considerations
Bigger isn’t always better. Accelerating deductions is most valuable in a high-income year. If you expect to be in a higher bracket later, spreading deductions out can be worth more.
Watch recapture. When you sell depreciated property, some of the deductions you took may be taxed when you sell.
Florida and other states may not follow federal bonus depreciation, so your state return can differ.
Keep good records: purchase date, placed-in-service date, cost including shipping and installation, and invoices.
Talk to us before major purchases
The best time to plan depreciation is before you buy. We can help you time purchases, choose between Section 179, bonus depreciation, and regular depreciation, and make sure the deductions are claimed correctly. This article is general information, not advice for your specific situation.