100% Bonus Depreciation Is Back — Permanently: What Maryland Business Owners Need to Know

What Is Bonus Depreciation and Why Does It Matter?

When a business purchases equipment, vehicles, machinery, or other qualifying assets, the IRS normally requires the cost to be deducted gradually over the asset's useful life — a process called depreciation. A piece of equipment with a 5-year class life, for example, would be deducted over five years rather than all at once.

Bonus depreciation is an exception to that rule. It allows businesses to deduct a large percentage — up to 100% — of the cost of qualifying property in the year it is placed in service, rather than spreading the deduction over years. The result is a much larger deduction in year one, which reduces taxable income immediately and creates real cash flow savings.

For a Frederick County contractor who buys $200,000 in equipment, the difference between 100% bonus depreciation and standard 5-year depreciation is the difference between a $200,000 deduction this year and a $40,000 deduction this year. At a combined federal and Maryland effective rate of roughly 45% for a high-income business owner, that timing difference is worth approximately $72,000 in tax saved in year one. For a complete overview of how the OBBBA affects Maryland businesses, see our full OBBBA guide.

What the One Big Beautiful Bill Act Changed

Under the 2017 Tax Cuts and Jobs Act, 100% bonus depreciation was available from 2017 through 2022. Starting in 2023, the bonus percentage began phasing down:

The OBBBA permanently restores 100% bonus depreciation for qualifying property placed in service on or after January 19, 2025 — the date the bill was introduced in Congress. Property placed in service between January 1 and January 18, 2025 is still subject to the 40% rate that was in effect at the time.

What Property Qualifies for 100% Bonus Depreciation?

Bonus depreciation applies to "qualified property" — a specific IRS definition. For most Frederick County businesses, the qualifying categories include:

• Tangible MACRS property with a class life of 20 years or less — this covers most business equipment, machinery, tools, computers, and furniture
• Computers and peripheral equipment
• Off-the-shelf computer software
• Qualified improvement property (QIP) — improvements to the interior of nonresidential buildings, such as tenant improvements, retail fit-outs, and renovation work inside a building
• Used property — unlike earlier bonus depreciation rules, used property qualifies as long as it is new to the taxpayer and meets certain acquisition requirements

What Does Not Qualify

• Real property — land and buildings (class life over 20 years)
• Property used predominantly outside the United States
• Property used for lodging (with some exceptions)
• Property acquired from a related party
• Property acquired in a like-kind exchange to the extent of the exchanged basis

Business Vehicles — A Special Category

Vehicles used for business purposes are eligible for bonus depreciation, but with important limitations depending on the vehicle type:

Passenger Automobiles — Luxury Auto Limits Apply

For passenger automobiles (cars and light trucks/vans under 6,000 lbs gross vehicle weight), the IRS imposes annual deduction caps — often called "luxury auto limits" — that cap the first-year depreciation regardless of the vehicle's cost. For 2025, the first-year limit for passenger automobiles with bonus depreciation is approximately $20,400. This means a $60,000 luxury vehicle cannot be fully expensed in year one regardless of bonus depreciation.

Heavy SUVs, Trucks, and Vans — Section 179 Limits Apply

Vehicles with a gross vehicle weight rating (GVWR) over 6,000 lbs — including full-size pickup trucks, cargo vans, large SUVs, and most work trucks — are not subject to the luxury auto caps. These vehicles can qualify for 100% bonus depreciation with no dollar limit based on the vehicle cost alone.

However, SUVs over 6,000 lbs but not classified as trucks or vans are subject to a separate Section 179 limit of $30,500 per vehicle. Pickup trucks with a cargo bed of at least 6 feet and cargo vans are not subject to this limitation and can be fully expensed.

Section 179 and Bonus Depreciation — How They Work Together

Section 179 expensing and bonus depreciation are related but separate provisions, and they interact in specific ways:

• Section 179 allows businesses to elect to expense qualifying property up to $2.5 million (raised by the OBBBA). Section 179 is applied first. It cannot create a loss — it is limited to your business taxable income.
• Bonus depreciation is applied after Section 179 on remaining basis. Unlike Section 179, bonus depreciation can create or increase a net operating loss (NOL) that can be carried forward to future years.
• For most small businesses, the practical result is the same — both allow full first-year expensing. The difference matters primarily when you want to create an NOL (use bonus depreciation) or when you want to choose which specific assets to expense (use Section 179).

See our S-Corp vs. LLC guide for how depreciation elections interact with business structure decisions.

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Maryland Conformity — The Important Caveat

Here is the most important Maryland-specific point in this entire article: Maryland does not fully conform to federal bonus depreciation.

Maryland historically required a depreciation addback on the state return — businesses that claimed federal bonus depreciation in excess of what Maryland allowed had to add back the difference on their Maryland return, then deduct it over subsequent years using Maryland's own depreciation schedule.

The practical result is a timing difference between your federal and Maryland deductions. You get a larger deduction faster on your federal return than on your Maryland return. The total deduction over the life of the asset is the same — but on Maryland you spread it over more years.

For more on Maryland-federal conformity differences, see our article on Maryland vs federal tax differences.

Who Benefits Most in Frederick County

The permanent restoration of 100% bonus depreciation is transformative for capital-intensive businesses. The Frederick County businesses that benefit most:

Contractors and Construction

General contractors, subcontractors, and specialty trades businesses regularly purchase heavy equipment, trailers, power tools, and work vehicles. A construction company that buys $500,000 in equipment in 2025 can deduct the full amount on its 2025 federal return — generating tax savings of $185,000 or more at combined federal and state rates. See our guide on deductions contractors always miss.

Farms and Agricultural Businesses

Farm equipment — tractors, combines, irrigation systems, grain bins, livestock equipment — qualifies for bonus depreciation. Frederick County farms with significant equipment investments can dramatically reduce taxable income in purchase years. See our farm tax guide for more.

Medical and Dental Practices

Exam tables, diagnostic equipment, imaging machines, dental chairs, and specialized medical devices all qualify. A dental practice investing $300,000 in new equipment can deduct the full amount in 2025 rather than depreciating it over 5 to 7 years.

Landscaping and Lawn Care

Commercial mowers, trailers, trucks, skid steers, and irrigation equipment all qualify. Landscaping businesses that grow through equipment investment can time purchases to maximize the deduction in high-income years.

Restaurants and Food Service

Commercial kitchen equipment — ovens, refrigerators, fryers, POS systems, and HVAC — qualifies. Restaurant owners who renovate or re-equip can expense the full cost in the renovation year through a combination of bonus depreciation and qualified improvement property rules.

Planning Considerations for 2025 and 2026

Since bonus depreciation is now permanent, the urgency to accelerate purchases before a phase-out deadline is gone. But timing still matters for tax planning purposes:

• Match deductions to high-income years — bonus depreciation is most valuable when your business income is highest. If 2025 is a strong year and you expect 2026 to be lighter, purchasing and placing equipment in service before December 31, 2025 maximizes the benefit
• Consider the NOL implications — if bonus depreciation creates a net operating loss, that loss can be carried forward to offset future income. In some cases it makes sense to use Section 179 instead to avoid creating an NOL
• Coordinate with Maryland planning — because Maryland's treatment differs from federal, the timing of purchases affects your Maryland addback schedule and multi-year Maryland planning
• Used equipment qualifies — if new equipment is backordered or budget-constrained, qualifying used equipment purchased at market price from an unrelated party also gets 100% bonus depreciation

Frequently Asked Questions

Does the equipment have to be new to qualify for bonus depreciation?

No — used property qualifies for 100% bonus depreciation as long as it is new to the taxpayer (you have not previously owned or used it), it was not acquired from a related party, and it was not acquired in a like-kind exchange. This means buying used equipment at fair market value from an unrelated seller qualifies for full first-year expensing.

Can I take bonus depreciation on a vehicle I also use personally?

Yes, but only on the business-use percentage. If you use a qualifying truck 80% for business and 20% personally, you can take bonus depreciation on 80% of the vehicle's cost. The personal use percentage is not deductible. Accurate mileage logs are essential to support the business-use percentage claimed.

What if I place equipment in service late in the year — does it still qualify?

Yes. Bonus depreciation is based on the date the property is placed in service — meaning it is ready and available for use in your business — not the date it is purchased or paid for. A piece of equipment purchased in November but not installed and operational until December 28 is placed in service on December 28 and qualifies for full 2025 bonus depreciation.

Can bonus depreciation be used on leasehold improvements to my business space?

Qualified Improvement Property (QIP) — improvements to the interior of nonresidential buildings that you lease or own — qualifies for bonus depreciation. This includes new flooring, lighting, walls, ceilings, HVAC systems, and other interior improvements. Structural components, elevators, escalators, and enlargements of the building do not qualify as QIP.