Federal Tax Law Expands Business Property Incentives in 2025

The federal government has enacted sweeping changes to business tax incentives through the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025. The legislation provides significant relief for businesses investing in capital equipment and creates new opportunities for startup investors through enhanced Qualified Small Business Stock (QSBS) provisions.

100% Bonus Depreciation Returns—Permanently

One of the most significant changes is the restoration and permanent extension of 100% bonus depreciation for qualified business property. Previously scheduled to phase down to 40% in 2025 and eventually expire, the new law reinstates full expensing at 100% for property acquired after January 19, 2025.

This benefit applies to a wide range of business assets, including:

• Machinery and equipment
• Computers and office technology
• Vehicles used for business purposes
• Off-the-shelf software
• Office furniture and fixtures

Critically, the 100% bonus depreciation applies to both new and used property, giving businesses significant flexibility in their capital investment decisions. Companies can now immediately deduct the full cost of qualifying assets rather than depreciating them over multiple years.

Section 179 Deduction Jumps to $2.5 Million

For small and medium-sized businesses, the Section 179 deduction provides an alternative method to immediately expense equipment purchases. Under OBBBA, the annual Section 179 deduction limit increases substantially:

The Section 179 deduction cannot exceed the business's net taxable income for the year, but any unused deduction amount can be carried forward to future tax years. Importantly, businesses can combine Section 179 with bonus depreciation to maximize their tax benefits.

Qualified Small Business Stock Exclusion Expands

The OBBBA also made C corporation status significantly more attractive for startups and their investors by expanding the Qualified Small Business Stock (QSBS) capital gains tax exclusion.

Under the new rules:

• The maximum exclusion increases from $10 million to $15 million for stock acquired after July 4, 2025
• Investors must hold the stock for more than five years to receive the full 100% exclusion
• A 50% exclusion is available after three years of holding the stock
• A 75% exclusion applies after four years

This change provides a powerful incentive for early-stage investors and company founders, potentially saving millions in capital gains taxes when a startup succeeds. The tiered approach also offers some benefit to investors who cannot meet the full five-year holding period.

20% Pass-Through Deduction Made Permanent

The 20% Qualified Business Income (QBI) deduction for pass-through entities—including S corporations, partnerships, sole proprietorships, and LLCs—has been made permanent under OBBBA. This provision was set to expire at the end of 2025 but will now remain in place indefinitely.

The QBI deduction allows eligible business owners to deduct up to 20% of their qualified business income, providing substantial tax savings for small business owners operating as pass-through entities rather than C corporations.

Strategic Implications for Business Planning

For Established Businesses

Companies planning capital investments should consider accelerating purchases to take advantage of immediate expensing through bonus depreciation and Section 179. The permanent nature of these provisions provides certainty for multi-year capital planning.

For Startups and Investors

The enhanced QSBS exclusion makes C corporation status more compelling for technology startups and other high-growth ventures. Founders and early investors should carefully consider entity structure to maximize potential tax benefits upon exit.

For Pass-Through Entities

The permanent QBI deduction ensures that pass-through businesses retain their competitive tax position relative to C corporations, making the choice of entity structure more dependent on operational and strategic factors rather than temporary tax provisions.

What Businesses Should Do Now

Business owners should work with their tax advisors to:

1. Review planned capital expenditures to maximize bonus depreciation benefits
2. Evaluate whether to use Section 179, bonus depreciation, or a combination of both
3. Assess entity structure in light of the enhanced QSBS provisions
4. Update financial projections to reflect the permanent nature of the QBI deduction
5. Document the acquisition date of assets to ensure eligibility for 100% bonus depreciation

Looking Ahead

The OBBBA represents one of the most significant expansions of business tax incentives in recent years. By making bonus depreciation permanent and substantially increasing Section 179 limits, the legislation provides businesses with powerful tools to reduce tax liability while investing in growth. The enhanced QSBS provisions also signal strong federal support for entrepreneurship and startup investment.

As these provisions are now permanent features of the tax code, businesses can incorporate them into long-term strategic planning with confidence. However, the complexity of these rules means that professional tax guidance remains essential to maximize benefits while ensuring compliance.

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