Core Takeaway:
100% bonus depreciation is back—great news for businesses looking to accelerate write-offs. But a new binding contract rule could catch early-year buyers off guard.
A Quick Recap: From Phase-Down to Full Recovery
When the Tax Cuts and Jobs Act (TCJA) passed in 2017, businesses celebrated a historic opportunity: 100% bonus depreciation for assets placed in service after September 27, 2017, through 2022. But that provision came with an expiration schedule built in—dropping to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and then disappearing entirely.
That phase-down was already hitting many companies hard. Businesses with capital additions over the §179 cap of $1.22 million were seeing their accelerated depreciation benefits shrink each year.
Enter the One Big Beautiful Bill Act (OBBBA)—and a welcome surprise: We’re back to 100% bonus depreciation starting in 2025, with no scheduled phase-out.
“Permanent” Does Not Mean Forever
The OBBBA’s version of 100% bonus depreciation is described as “permanent”, meaning there’s no end date currently written into law.
But “permanent” in tax language doesn’t mean untouchable—it simply means “in place until Congress changes it.” As with many tax provisions, this could shift with future legislation or political priorities.
For now, though, businesses have a valuable opportunity to fully expense qualified property immediately, improving cash flow and return on investment for new assets.
The 2025 Twist: Binding Contract Date vs. Placed-in-Service
Here’s where the new binding contract rule gets tricky. In the past, bonus depreciation eligibility was determined by when the asset was placed in service—the date it was first ready and available for use in your business.
For 2025, there’s a new test to pass: the binding contract date.
If your business entered into a binding contract before January 20, 2025, that asset does not qualify for the full 100% bonus depreciation rate, even if it’s not delivered or placed in service until later in the year.
Instead, it’s treated under the pre-OBBBA rules, meaning you’d get only 40% bonus depreciation on that property.
Example: How Timing Affects Your Deduction
| Scenario | Contract Signed | Placed in Service | Bonus Depreciation Available |
| A | January 10, 2025 | February 15, 2025 | 40% (binding contract before OBBBA effective date) |
| B | January 25, 2025 | February 15, 2025 | 100% (binding contract after OBBBA effective date) |
Even though both assets were placed in service in February 2025, Scenario A fails the test because the contract was binding before January 20, 2025.
That small difference—just a couple of weeks—could change your deduction by tens of thousands of dollars.
How to Be Careful About Contract Dates—Even After January 2025
You might be thinking, “January 20 has already passed—what can I do now?”
Even though that date is behind us, it still has major implications for how 2025 purchases are depreciated and how you document them going forward.
#1 Review Early-Year Purchase Orders
Many companies placed orders in late 2024 or early January 2025 that are still being delivered or installed.
Those assets may look like 2025 purchases on your books, but if the binding contract was signed before January 20, 2025, they only qualify for 40% bonus depreciation.
Action: Pull all contracts, purchase orders, and invoices from December 2024–January 2025 and confirm their execution dates. Keep clear documentation in your fixed-asset files.
#2 Confirm Whether Your Contract Was Truly “Binding”
A “binding contract” must legally obligate both parties to proceed, usually with penalties for cancellation.
If your agreement was conditional, cancellable, or still under negotiation before January 20, it may not count as binding—potentially qualifying the property for 100% bonus depreciation after all.
Action: Have your CPA or legal advisor review early 2025 contracts to determine if they were binding under tax rules.
#3 Track Placed-in-Service Dates Alongside Contract Dates
Even though placed-in-service is no longer the only determining factor, it’s still critical.
Your 2025 asset records should include both:
- Contract (or order) date
- Placed-in-service date
Action: Add a “binding contract date” column in your fixed asset ledger or capital project tracking spreadsheet to document this going forward.
Bonus vs. §179: Managing Taxable Income and NOLs
While bonus depreciation offers speed and simplicity, Section 179 remains a critical tool for controlling your final taxable income.
- Bonus depreciation can create or increase a Net Operating Loss (NOL)—which is limited to offsetting 80% of future taxable income.
- Section 179 allows you to choose specific assets and deduction amounts—helpful if you want to reduce taxable income to zero, but not create a loss.
For many businesses, the ideal 2025 strategy will be a combination of both methods:
- Use §179 to target your desired bottom line.
- Apply bonus depreciation for the remaining assets.
- Stay aware of how state conformity rules (like California’s limits) will affect your total deductions.
The Bottom Line
2025 brings great news: 100% bonus depreciation is back. But the IRS has added a new wrinkle—the binding contract rule—that could make or break your eligibility for full expensing.
The key takeaway? Timing is everything. Before signing equipment or construction contracts, check the date, review the fine print, and talk with your CPA. A few days on paper could be worth thousands in deductions. Contact us today!
