The OBBB Creates New Opportunities for Fixed Asset Planning – Zach Packard, CPA, Auditor

The One Big Beautiful Bill (OBBB) restored two tax provisions that can significantly impact fixed asset planning – 100% bonus depreciation and the depreciation addback for calculating Section 163(j) business interest limitation. Together, these changes may provide businesses with greater opportunities when planning fixed asset purchases or capital improvements.

One of the more notable changes in the OBBB is the return of 100% bonus depreciation. Under prior law bonus depreciation was phasing down each year. After tax year 2026, bonus depreciation was scheduled to be completely phased out. The OBBB restores 100% bonus depreciation permanently, allowing businesses to immediately expense the cost of qualifying property placed in service after January 19, 2025.

The OBBB also restores a favorable rule related to the Section 163(j) business interest expense limitation. Beginning in 2022, taxpayers were required to calculate adjusted taxable income using an EBIT-based approach, meaning depreciation and amortization deductions reduced the amount of interest expense that could be deducted. This created challenges for many capital-intensive businesses that regularly invest in depreciable assets or rely on financing to support operations and growth.

Under the OBBB, depreciation and amortization are once again added back when calculating adjusted taxable income for Section 163(j) purposes. This effectively returns the limitation calculation to a more favorable EBITDA-style approach and may allow businesses to deduct a larger portion of their interest expense.

These two provisions are especially important when paired together. In recent years, businesses often faced a difficult balancing act when purchasing fixed assets. Taking large depreciation deductions could lower taxable income, but it could also reduce adjusted taxable income for Section 163(j), limiting the deduction for business interest expense. The OBBB helps eliminate much of that conflict by restoring the depreciation addback while also allowing businesses to immediately expense qualifying purchases.

Businesses that are considering large capital purchases may now be in a much stronger tax position than they were in recent years. With the return of 100% bonus depreciation and the more favorable Section 163(j) calculation, companies may be able to fully expense qualifying asset purchases while also preserving a larger deduction for the interest expense used to finance those purchases. This combination can create substantial upfront tax savings and improve after-tax cash flow. Taxpayers planning significant investments should work closely with their advisors to evaluate the timing of purchases and financing arrangements to maximize the benefits available under the new rules.