OBBBA Permanent Expensing for Businesses: A Game-Changer in Tax Policy

The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, marks a major overhaul of U.S. federal tax law, especially for businesses. Often called the OBBB, this law makes several expensing rules permanent, undoing the phase-outs from the 2017 Tax Cuts and Jobs Act (TCJA). At its core, permanent expensing lets businesses deduct the full cost of qualifying investments immediately instead of spreading it out over time.

This change aims to boost economic growth by encouraging capital investments, creating jobs, and fostering innovation. For businesses, it means better cash flow, lower tax bills, and more certainty for long-term planning.

Background on Depreciation and Expensing Pre-OBBB

Before the OBBB, U.S. tax rules on asset depreciation were governed by the Modified Accelerated Cost Recovery System (MACRS), which spread deductions over an asset’s useful life—often 3 to 39 years. The TCJA introduced temporary improvements, such as 100% bonus depreciation for qualified property from 2018 to 2022, enabling immediate write-offs for items like machinery, equipment, and certain improvements.

However, this benefit started phasing out: 80% in 2023, 60% in 2024, and further reductions to 40% by early 2025, eventually ending at 0% by 2027. Section 179 expensing, aimed at small and mid-sized businesses, allowed immediate deductions up to $1.16 million in 2024, with a phase-out threshold around $2.89 million. Research and development (R&D) costs, which were once fully expensable, now had to be amortized over five years starting in 2022, increasing initial tax burdens. These temporary changes created uncertainty, deterring investments as businesses expected higher future taxes.

The OBBB addresses these issues by making expensing permanent, effective largely for assets placed in service after January 19, 2025. This permanence is seen as a "big, beautiful" incentive for American manufacturing and innovation, aligning with broader goals of economic recovery post-pandemic.

Key Provisions of Permanent Expensing

1. 100% Bonus Depreciation Made Permanent: The key element of the OBBB’s business provisions is the continuation and permanence of 100% bonus depreciation under Section 168(k). Businesses can now fully expense qualifying property—such as MACRS assets with a recovery period of 20 years or less, computer software, qualified improvement property (interior nonresidential building improvements), and even qualified films or theatrical productions—in the year it is placed in service.

   This applies to property acquired after January 19, 2025, reversing the 2025 phase-down to 40%. Taxpayers can choose a reduced deduction for 2026 if needed. Notably, roofs and HVAC systems in nonresidential buildings may not qualify for bonus depreciation but can qualify under Section 179.

2. Enhanced Section 179 Expensing: For smaller enterprises, Section 179 limits are increased and made permanent. Businesses can deduct up to $2.5 million in tangible property costs (such as machinery and equipment) each year, with a phase-out threshold of $4 million—more than double previous amounts. This applies to property placed in service after December 31, 2024, which disproportionately benefits small and mid-sized firms.
3. R&D Expensing Reinstated: Domestic research and experimental expenditures now qualify for immediate expensing again, reversing the previous 2022 amortization requirement. Small businesses (with gross receipts under $31 million in 2025) can amend their returns for 2022-2024 to claim this retroactively; larger businesses can deduct unamortized amounts in 2025 or spread them over two years.

   This provision, which is permanent for tax years after December 31, 2024, benefits sectors like tech, pharma, and manufacturing.

4. Additional Incentives: The bill introduces expensing for qualified production property (e.g., manufacturing facilities) placed in service between July 4, 2025, and January 1, 2029, and a $150,000 deduction for U.S.-produced sound recordings. It also increases the advanced manufacturing investment credit to 35% for semiconductor facilities.

Benefits and Economic Impact

Permanent expensing under the OBBB offers businesses immediate tax relief, freeing up capital for reinvestment. For example, a company buying $1 million in equipment can deduct the full amount upfront, potentially saving hundreds of thousands in taxes depending on rates. This reduces the effective cost of capital, raising internal rates of return and encouraging expansion. Economists predict it will boost U.S. manufacturing growth, with businesses already planning equipment purchases due to policy certainty. Small businesses gain flexibility, while larger ones in R&D-heavy industries like biotech benefit from retroactive claims.

Critics claim it favors capital-heavy sectors and may increase budget deficits, but supporters emphasize long-term GDP growth—estimated at 0.5-1% annually from similar policies. The IRS has provided guidance on implementation, advising businesses to seek advice from consultants for compliance

In conclusion, the OBBB’s permanent expensing provisions represent a pro-business shift in tax policy, encouraging investment during economic challenges. By removing phase-outs, it provides stability and helps U.S. companies stay competitive globally. As of September 2025, early adopters report faster growth, highlighting its potential as a driver of prosperity.