How Companies Can Take Advantage of New Equipment Deduction Rules

When the government wants to spur business activity, the tax code can be an effective tool. And one popular way of using that tool is to give companies the ability to deduct more of the cost of business equipment immediately. Known as bonus depreciation, this incentive has been used after disruptions such as the terrorist attacks of 2001 and the 2008 financial crisis to get business investment back on track.

It was also one of the tax perks for businesses in the Tax Cuts and Jobs Act of 2017. In that case, however, 100% bonus depreciation came with an expiration date. In 2023, businesses could immediately deduct only 80% of their qualifying expenses, and that dropped to 60% in 2024 and 40% in 2025.

But that phaseout of this highly desirable tax advantage ended with the passage of the One Big Beautiful Bill Act (OBBBA) in summer 2025. The law not only restored 100% bonus depreciation for qualifying equipment put in service after January 19, 2025, but it also made the tax rule permanent. That’s good news for businesses of all sizes and in every industry. For example, invest $10 million in an industrial robot, and now you can reduce your company’s taxable income for the year by that full amount.

What to know about bonus depreciation

The "bonus" aspect of bonus depreciation is the ability to speed up the timetable for deducting the costs of asset purchases—of factory equipment, machinery, business vehicles, furniture, fixtures and other kinds of business property—that would ordinarily have to be depreciated over a period of years.

Bonus depreciation changes that equation, enabling a company to deduct all or part of the purchase price of an asset for the tax year during which it was acquired and put into service. The OBBBA establishes 100% bonus depreciation for qualifying assets that have a recovery period of 20 years or less. The fact that this new rule is permanent should add planning certainty about the tax treatment of current and future purchases. The rule change also simplifies accounting by eliminating the need to track depreciation of assets over several years.

How to leverage the new law

1. A tax lease. There are several ways to take advantage of these provisions in the OBBBA. With the guidance of their tax advisors, businesses should evaluate their ability to fully use the depreciation expense generated by new capital expenditures for qualifying assets. (For 2025, this applies only to equipment put into service after January 19.)

For companies whose taxable net income might not be sufficient to support taking the 100% bonus depreciation in a given year, there is a powerful alternative: leasing the new equipment through a financial institution vs. buying it. In this arrangement, known as a tax lease, the bank is the official owner of the equipment and gets the bonus depreciation. "The bank passes those savings to the company leasing the equipment in the form of lower payments," says John Drake, national sales manager, Fifth Third Technology Finance.

Companies will often choose to lease specific types of assets, such as medical equipment, material handling equipment and information technology, all of which can become outmoded relatively quickly.

2. A fair market lease. To acquire these assets, a business can take advantage of a fair market value lease. "This provides options at the end of the lease to purchase the equipment for fair market value, extend the equipment while a decision is being made or return the equipment," Drake says. "Often the plan is to return the equipment and replace it with new to avoid technical obsolescence or an increase in maintenance costs." The financial benefits of a lease arrangement can be considerable.

Suppose the value of the leased equipment is $1 million. Before the passage of the OBBBA, bonus depreciation in 2025 would have applied to only 40% of that cost. With a 21% corporate tax rate, that would have resulted in a deduction worth $84,000. But with the reinstatement of 100% expensing, the value of the deduction rises to $210,000—and lease payments would drop by a commensurate amount.

In considering how to use this rule change to your advantage now and in the future, it’s essential to consult with your tax advisors,” says Lance King, South Region team lead, equipment finance, Fifth Third Bank.

3. Other options. Some companies will leverage the new law by choosing to use debt to finance their equipment purchases. In that case, says King, a business will get the benefit of the restored 100% bonus depreciation—and will need to decide what to do with the tax savings. But what if, for example, your taxable income for the year is just $5 million and your capital expenditures are $15 million? Taking the bonus depreciation would potentially give the company a $10 million net operating loss or carryforward.

"While the company can carry forward that loss to use in future years, the business may prefer to avoid a carryforward now,” he says. “In situations like this, we ask our clients about their tax strategy. Fifth Third’s experts work with CEOs and CFOs to find the best solutions to finance their capital expenditure strategies.”

One solution might be for the company to finance $5 million of the equipment purchase and use a tax lease for the rest of it. This approach could maximize the company’s tax strategy. Then the bank’s ability to use the tax depreciation benefits on the lease will result in reduced lease payments, further improving the business’s cash flow and adding flexibility for pursuing other goals.

Taking advantage of other new tax rules

Another provision of the OBBBA affects business interest deductions, changing back from rules based on earnings before interest and taxes (EBIT) to a formula using earnings before interest, taxes, depreciation and amortization (EBITDA). "Many of the companies we advise or partner with, especially if they’re private equity-owned, are very focused on EBITDA," says King, who notes that EBITDA is the multiple by which such a business’s performance is judged, and it’s crucial for growing the value of the company.

In these and other situations, businesses need to work closely with their tax advisors to plan their investment strategies. Tax lease opportunities should be considered by companies with a focus on EBITDA growth. Depending on the assets being acquired, there are tax lease options that may be capitalized for book purposes. Regardless, the opportunities presented by the OBBBA are likely to be substantial. "The new rules can help maximize your tax strategy and improve your cash flow, which gives you capital for other investments," King says. "Whether that means more equipment, expansion, more people, automation or even just more cash, now you’ll be in a better position to pursue your strategic goals."

How Fifth Third can help

The reinstatement of 100% bonus depreciation will reshape the capital investment landscape. Now is the time to reassess your capital strategies, align with the tax incentives provided by the bill and take action to optimize investment timing, structure and return.

Navigating the evolving landscape with confidence and precision demands an expert strategic partner. Discover how your company can benefit from the new equipment financing and leasing options with insights from the experts at Fifth Third and visit here to learn more.