Executive Summary

The One Big Beautiful Bill (OBBB), enacted July 4, 2025, represents the most significant update to U.S. depreciation rules in recent history. The legislation permanently reinstated 100% bonus depreciation, expanded Section 179 expensing, introduced a new category of Qualified Production Property (QPP), and restored immediate expensing for domestic R&D expenditures.

This update provides an overview of the confirmed provisions, timely planning insights for Q3 2025, and real-world examples to help you understand how the new rules may apply.

Confirmed Provisions

Bonus Depreciation

• Permanent 100% bonus depreciation applies for property placed in service on or after January 20, 2025.
• Assets placed between January 1 and January 19, 2025 remain under the prior 40% phase-down.

Section 179 Expensing

• The deduction limit is increased to $2.5 million.
• Phase-out threshold raised to $4 million.

Qualified Production Property (QPP)

• Certain nonresidential real property used in manufacturing or production may qualify for a 100% depreciation election.
• Construction must begin after January 19, 2025, and the property must be placed in service by January 1, 2031.

R&D Expensing

• Domestic R&D expenditures are immediately deductible beginning in 2025.
• Foreign R&D expenditures must still be amortized over 15 years.

Action Steps for Q3 2025

• Verify placed-in-service dates and confirm that pre- and post-January 20 assets are treated correctly.
• Conduct cost segregation studies, particularly for buildings and mixed-use facilities.
• Plan Section 179 purchases and act before year-end to utilize expanded limits.
• Evaluate R&D spending and consider accelerating domestic costs in 2025.
• Document QPP projects by maintaining records of start dates and allocations of production versus non-production space.

Practical Scenarios & FAQs

Scenario 1 – Equipment Purchase Timing

Q: Ordered machinery in December 2024, installed in February 2025. Eligible for 100% bonus?
A: Yes. Bonus is based on the placed-in-service date. Installed after January 20, 2025 = 100% bonus. Installed January 1–19 = 40%.

Scenario 2 – Mixed-Use Facility

Q: The Building has both production and office space. Does all of it qualify as QPP?
A: No. Only the production portion qualifies. Offices, lodging, and R&D areas are excluded. A cost segregation study is recommended.

Scenario 3 – Section 179 vs. Bonus

Q: Can we use both Section 179 and bonus depreciation?
A: Yes. Apply Section 179 first, then bonus depreciation, then MACRS. Especially important in states that do not conform to federal bonus rules.

Scenario 4 – R&D Costs

Q: How do we handle projects split between U.S. and overseas engineers?
A: Domestic R&D is immediately deductible. Foreign R&D must be amortized over 15 years. Keep detailed time and cost records to support allocations.

Scenario 5 – Construction Projects

Q: A production facility started in early January 2025, finishing in 2026. QPP eligible?
A: No. QPP requires construction to begin after January 19, 2025. Future expansions beginning after this date may qualify.

Scenario 6 – Audit Risk

Q: Will the IRS focus on QPP claims?
A: Yes. Expect heightened scrutiny. Maintain engineering studies, floor plans, and allocation schedules.
 

Key Issues Awaiting IRS/Treasury Clarification

Formal IRS regulations are forthcoming. Specifically, the IRS and Treasury are expected to issue guidance on:

• Qualified Production Property (QPP): defining the predominant use threshold, clarifying treatment of support areas (such as warehouses, utilities, and cafeterias), and specifying election mechanics (per property, project, or year).
• R&D Expensing (Section 174A): allocation rules between domestic and foreign costs, interaction with Section 280C, and potential safe harbors for mixed projects.
• Bonus Depreciation Transition: guidance for projects under construction across January 19/20, 2025, and safe harbors for assets contracted before OBBB but placed in service after enactment.

Conclusion

The OBBB creates extraordinary opportunities for businesses to accelerate tax deductions and improve cash flow. At the same time, with several critical issues still awaiting IRS guidance, cautious planning and strong documentation are essential.

Now is the right time to review your capital expenditures, construction projects, and R&D budgets to ensure you are maximizing benefits under the confirmed rules while positioning yourself safely in areas of uncertainty. Our team is available to discuss how these provisions apply to your specific situation and to guide you through planning for year-end.