Background

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA,” H.R.1). Among other things, the OBBBA permanently reinstates 100% bonus depreciation under Section 168(k) for qualified property placed in service after January 19, 2025, raises the Section 179 expensing cap to $2.5 million (phased out after $4 million in qualifying purchases) for property placed in service in taxable years beginning after December 31, 2024, and permanently relaxes the limitation on the deductibility of business interest by restoring the 30 percent of EBITDA limitation. For transportation and other capital-intensive businesses, the new rules allow an immediate deduction of the entire cost of most aircraft, rolling stock, ground-support gear and heavy equipment placed in service after the effective dates.

Key Changes at a Glance

What Property Qualifies for Bonus Depreciation

The reinstated 100% bonus depreciation regime applies to qualified new and used property placed in service after January 19, 2025, provided the binding contract to acquire the property was signed on or after that same date; thus, long-production-period assets (e.g., backlogged wide-body orders) are eligible for 100% bonus depreciation even if delivered years out, provided the purchase contract is executed after January 19, 2025. Used property generally qualifies as long as the property was not previously used by the purchaser or received from a related party.

Qualified property comprises a broad class of tangible business property with a recovery period of 20 years or less. The chart below highlights implications for core asset classes:

What Types of Property Qualify for Section 179

In general, the expensing rule under Section 179 applies to the same types of property for which bonus depreciation is available. Under Section 179, a business can write off the entire cost of an asset (up to $2,500,000 for property placed in service in 2025, which amount is indexed for inflation going forward) as an immediate business expense. This deduction starts to phase out when qualifying purchases exceed $4,000,000 in 2025 (which amount also is indexed for inflation).

Bonus depreciation and expensing under Section 179 are different in important respects. For example, bonus depreciation has no property cost limit and no taxable income requirement (i.e., a bonus depreciation deduction can be used to create a net operating loss). On the other hand, Section 179 expensing offers more flexibility, because a taxpayer can (i) elect Section 179 expensing on a property-by-property basis, whereas the bonus-depreciation election is made on a MACRS class-life basis (e.g., all 5-year property placed in service in that taxable year) and (ii) elect to expense only a portion of a property’s cost under Section 179. Where property qualifies for both provisions, any Section 179 deduction is taken first, and bonus depreciation is then applied to the remaining basis.

Business-Use Requirements and Standards

Eligibility for both bonus depreciation and Section 179 expensing depends on meeting IRS standards for business use, not just on asset type.

To qualify for bonus depreciation, certain listed property—such as aircraft, vehicles and other mobile machines—must demonstrate that more than half their total hours, miles or cycles are devoted to a “qualified business use” (QBU) in the year placed in service. IRS regulations clearly define QBU as usage directly connected to the taxpayer’s trade or business.

Specifically, for aircraft, a two-step standard under Section 280F (which governs depreciation of “listed property,” including aircraft) applies:

First, at least 25% of total hours must be unrelated-party business use (such as third-party charters, customer demo flights or outside dry leases).

Second, once the 25% threshold is met, the combined business and charter use must exceed 50%. Flights for owners, significant shareholders or related parties count only after meeting the initial 25% unrelated-party standard.

Example – QBU test in practice: In 2025 an aircraft flies 600 total hours: 180 charter hours to unrelated parties (30%), 150 related-party business hours (25%) and 270 personal hours (45%). Unrelated-party business use exceeds 25% and total business use is 330/600 = 55%, so the aircraft meets both tests and qualifies for 100% bonus depreciation (subject to the recapture rules discussed below).

Measurement of QBU typically involves operational metrics already used by businesses, such as flight hours, tach-time, rail-miles, or machine-hours, which are tracked monthly. Unreimbursed personal or entertainment use does not qualify and may trigger separate deduction limitations under Section 274. Documenting reimbursement or including imputed income on employee W-2s can mitigate issues related to personal use.

If the use of the asset outside the United States exceeds 50% in any tax year, bonus depreciation is disallowed for that year and depreciation switches to the straight-line Alternative Depreciation System (ADS). See the Recapture Mechanics and Example section below for an illustration of how this works.

For Section 179 expensing, business use must exceed 50% in the year the asset is placed into service. Partial deductions based on business-use percentage are allowed, but no deduction is permitted if business use is 50% or less.

Maintaining detailed, contemporaneous records is essential to substantiating business use. Logs should include tail numbers, routes, dates, passengers and business purposes, as inadequate recordkeeping is the most frequent audit risk.

Recapture Mechanics and Example

Under bonus depreciation rules, if the QBU of listed property drops to 50% or below in a year following the year placed in service, taxpayers do not lose all previously claimed bonus depreciation outright. Instead, taxpayers must recompute depreciation using the straight-line ADS method from the outset, calculate any excess depreciation previously claimed (including bonus depreciation) and recapture that excess as ordinary income in the year the property falls below the required threshold.

For example, assume a taxpayer places a $10 million aircraft in service in 2025 and claims the full $10 million as bonus depreciation. If business use remains above 50% until 2027, when it drops to 40%, the taxpayer must recalculate depreciation for 2025-2026 using straight-line ADS depreciation (which, for simplicity, assume totals $4 million over two years). The excess amount—$6 million—is then recaptured as ordinary income in the 2027 tax return, but the taxpayer would be able to claim $2 million of straight-line depreciation in 2027 as well.

States May Not Conform to Federal Rules on Bonus Depreciation or Section 179

Many states (including California, New York and Illinois) require a partial or total add-back of federal bonus depreciation, or provide for a lower (or zero) cap on Section 179 expensing. Companies may need to maintain multiple depreciation schedules and pay state income tax even when federal taxable income is zero.     

Practical Steps

1. Accelerate qualified purchases while federal rules are advantageous.
2. Immediately establish and maintain detailed usage logs to substantiate qualified business use in audits.
3. Arrange charter or third-party leases strategically to meet the 25% unrelated-party usage threshold for aircraft.
4. Evaluate recapture implications proactively if changes in use are anticipated.
5. Budget additional state income tax for states not conforming to federal depreciation rules.
6. Compare and model tax savings between bonus depreciation and Section 179 deductions for optimal outcomes.

Outlook

For aviation, rail and heavy-equipment operators, OBBBA delivers the most advantageous federal depreciation and expensing regime in decades. Please contact us with additional questions regarding the impact of OBBBA.