100% Bonus Depreciation Is Back: Equipment Purchase Planning for Ohio Businesses
A major equipment purchase can reduce your federal taxable income in the year the equipment is ready for use. The 2025 tax law restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025, with no scheduled phaseout.
A full deduction can be useful, but the amount of tax it saves depends on the rest of your return. Compare the deduction with your expected income, Ohio taxes, and loan payments before committing to a purchase.
What equipment qualifies?
Common candidates include machinery, computers, office furniture, and medical or dental equipment. The federal rules generally cover tangible business property with a tax recovery period of 20 years or less, certain computer software, and qualified improvement property.
Qualified improvement property means certain improvements you make inside an existing nonresidential building. Building expansions, elevators, escalators, and the building's internal structural framework do not qualify under that category. Land cannot be depreciated. Buildings generally do not qualify for equipment bonus depreciation, although a separate rule covers certain production property.
Used equipment can qualify. Eligibility depends on prior use by you or a predecessor, whether the seller is related to you, and the rules for determining your tax basis. Inherited property and transfers that carry over another owner's basis generally do not qualify for used-property bonus depreciation. Property required to use the alternative depreciation system is also excluded. The IRS depreciation guide explains these eligibility rules.
Vehicles need a separate calculation. Vehicle type, weight, business use, and passenger-auto limits affect the deduction. Many vehicles require more than 50% qualified business use to claim bonus depreciation or Section 179. A vehicle's advertised write-off may differ from the deduction available for your actual business use.
When does the deduction become available?
Both the acquisition date and the date you place the equipment in service matter. Equipment ordered under a binding contract in place before January 20, 2025, may remain subject to the old bonus depreciation phaseout, even if delivery occurs later. The IRS transition guidance explains how the contract rules apply.
“Placed in service” means ready and available for its intended business use. If necessary installation is unfinished at year-end, the deduction generally waits until the equipment is ready and available. Build delivery, installation, and any required site work into your purchase timeline.
Financing generally does not prevent a deduction. If your business owns the qualifying equipment for tax purposes, the financed cost can generally be included in its tax basis, the amount used to calculate depreciation. The equipment still must be placed in service, and the deduction remains subject to the other rules below.
Bonus depreciation or Section 179?
Both can provide a first-year deduction. This comparison uses the limits for tax years beginning in 2026.
| Question | Bonus depreciation | Section 179 |
|---|---|---|
| How much can be deducted? | 100% of eligible depreciable basis under the restored rules; no overall dollar cap. | Up to $2,560,000. That limit falls dollar for dollar when qualifying property placed in service exceeds $4,090,000. |
| How is it selected? | Applies automatically unless you elect out. The election generally covers a whole class of property placed in service that year. | You choose the assets and amounts to expense. |
| Can it create a loss? | Yes, although other rules can limit when the loss is deductible. | Limited by taxable income from actively conducted trades or businesses. Amounts blocked by that income limit carry forward. |
Special transition elections can allow 40% bonus depreciation, or 60% for certain longer-production property and aircraft, for the first tax year ending after January 19, 2025. They do not replace the general 100% rule for qualifying 2026 purchases.
Ohio may spread out the deduction
For Ohio individual income tax, business owners generally add back five-sixths of federal bonus depreciation. They then deduct one-fifth of that addback in each of the next five years. Section 179 has a similar adjustment on the portion exceeding the deduction allowed under the federal rules in effect at the end of 2002.
The Ohio rules include exceptions tied to payroll withholding, federal net operating losses, and ownership interests in pass-through businesses. Those exceptions can change both the addback and the years when deductions become available. Include the Ohio calculation when estimating the purchase's tax savings.
How much tax will the purchase save?
For example, a $300,000 equipment package used entirely for business could produce a $300,000 federal deduction if all costs qualify and no basis reductions apply. The tax savings would be a portion of that amount.
A deduction that creates a business loss may not all be usable on your personal return immediately. The loss limitations consider your investment in the business, the amount financially at risk, your participation, and your overall business losses. Separate net operating loss rules govern how qualifying losses are used in other years.
Depreciation also generally reduces qualified business income, which can reduce the qualified business income deduction. If this is an unusually low-income year, spreading the equipment deduction over future years may produce a better result. Compare those choices using your expected income and cash needs.
Include taxes in the purchase decision
Compare the purchase price, financing terms, expected business use, and delivery and installation timeline. Equipment and related construction costs may follow different depreciation rules, so the tax estimate should account for each separately.
Compare taking the deduction now with spreading it over time, including both federal and Ohio taxes. The purchase should work for the business and its cash flow after the tax savings are included.