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In July 2025, the Congress passed the budget reconciliation law, which introduced several general business provisions that may benefit business owners and the equipment finance industry as a whole.
- Expands qualified small business stock (QSBS) tax benefits
- Allows immediate deduction of domestic research and development (R&D) expenses incurred after December 31, 2024
- Increases the amount of business interest that can be deducted
- Increases the Section 179 deduction cap
- Permanently extends and expands first-year bonus depreciation
- Permanently extends and expands deductions for qualified business income (QBI) available to owners of eligible businesses
In this Balboa Capital blog article, we briefly elaborate on the last three provisions in the list above—the Section 179 tax deduction, first-year bonus depreciation, and the qualified business income (QBI) deduction. These three tax updates, initially set to undergo modifications after December 31, 2025, have been revised mid-year, resulting in more favorable changes than many initially anticipated.
The Section 179 limit increased to $2.5 million
Section 179 of the Internal Revenue Code has long served as a valuable financial tool for small businesses nationwide. The Section 179 tax deduction allows businesses to purchase qualifying assets and expense the purchase in the year they are acquired and placed in business use. The Section 179 expensing cap, which was set at $1,250,000 through December 31, 2025, increased to $2.5 million.2 Additionally, the phase-out threshold has increased to $4 million from $3,130,000 for eligible assets and property acquired and placed into service after December 31, 2024.3
This increase provides businesses like yours with more financial flexibility regarding capital equipment investing. Specifically, bigger investments may be made in qualifying equipment, vehicles, technology, and other assets, and a deduction may be taken for the full purchase price of one or more such assets (up to $2.5 million in 2025). This eliminates the need to deal with lengthy depreciation schedules.
The Section 179 deduction is not automatic and must be elected. To elect the Section 179 deduction, you must complete IRS Form 4562 and attach it to your tax return.
Bonus depreciation increased to 100%
If you’re looking to acquire eligible assets for your business and would prefer to deduct a substantial portion of the purchase price right away, you should explore the option of first-year bonus depreciation. In 2025, the first-year bonus depreciation rate was set at 40% and was scheduled to decrease to 20% in 2026.4 However, it will increase to 100% for eligible assets acquired and placed in business service after January 19, 2025.5 Additionally, a 100% first-year bonus depreciation rate has been permanently established.6
Bonus depreciation is available for many new and used business assets and property with a useful life of 20 years or less. This includes machinery, various types of vehicles, specialized equipment, technology (e.g., computers, printers, servers, and off-the-shelf software), as well as office furniture.
The qualified business income (QBI) deduction was made permanent
The qualified business income (QBI) deduction, also known as the 199A Deduction, allows owners of eligible businesses to deduct up to 20% of their qualified income. Initially, this deduction was set to expire at the end of 2025. However, the qualified business income (QBI) deduction has now been made permanent.7
While the default deduction rate will now remain at 20%, some specified service trades or businesses (SSTBs) will be subject to income-based limits. Specifically, the phase-in range for these businesses will increase from $50,000 to $75,000 for individuals filing non-joint tax returns, and from $100,000 to $175,000 for those filing joint returns.8
The QBI deduction helps owners of pass-through businesses, such as limited liability companies (if not taxed as corporations), sole proprietorships, and S corporations, reduce their taxable income.
Conclusion
The increases in the Section 179 tax deduction limit and the bonus depreciation rate serve as tax incentives for businesses investing in capital equipment. However, not all types of business assets qualify for the Section 179 tax deduction or bonus depreciation. Since each business’s financial situation is unique, it is advisable to consult with an accountant before making any purchases.
Sources:
1, 2, 3, 5, 6, 7, 8 – https://www.bipc.com/one-big,-beautiful-bill-.-.-.-simplified
4 – https://tax.thomsonreuters.com/news/trump-pledges-to-restore-tcja-full-bonus-depreciation/
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations of any kind for any individual or entity. Readers are cautioned to seek the counsel of their accounting, tax, legal and other advisors. Balboa Capital does not endorse and is not affiliated with any of the companies or organizations listed in this article.