By Director and Practice Integration Advisor Thomas Bodin, CFA®, CFP®
In this month’s article, we continue breaking down major provisions of the One Big Beautiful Bill Act (OBBBA) and how they may affect practice owners. One of the most impactful changes involves bonus depreciation—a tool many clinicians rely on to manage taxable income. This article explains the updated rules, compares bonus depreciation to Section 179, and highlights planning considerations that can materially influence multi-year tax outcomes.
OBBBA Restores 100% Bonus Depreciation
Capital expenditures—such as dental chairs, imaging equipment, or surgical devices—do not need to be deducted in the year purchased. Instead, they can be depreciated over a schedule that aims to match the asset’s useful life. Depreciation methods can vary, but for most medical and dental practices, the common options include the modified accelerated cost recovery system (MACRS), bonus depreciation, and the Section 179 deduction.
Bonus depreciation was originally introduced in 2002 for partial first-year expensing. Over the years, Congress expanded and extended it several times. Prior to the OBBBA, it was scheduled to phase down annually until it reached 0%. The OBBBA reversed course and permanently restored 100% bonus depreciation for assets acquired and placed in service after January 19, 2025. While “permanent” simply means Congress did not include a future sunset, the new law provides more stability than the prior phase-down but may be changed by legislation again in the future. Under the restored 100% rate, eligible assets can be fully deducted in the year they are placed into service—often producing a substantial reduction in taxable income.
Bonus Depreciation Versus Section 179
Although 100% bonus depreciation appears similar to a Section 179 deduction, key differences matter when planning a practice owner’s tax strategy. Section 179 allows eligible purchases to be fully expensed up to roughly $2.5 million, with a phase-out starting around $4 million. These limits typically accommodate most private health care practices. Bonus depreciation, by contrast, has no dollar limit, making it particularly useful for large build-outs or multi-location expansion.
Impact on Taxable Income
Section 179 cannot be used to create a net operating loss (NOL). You can only deduct Section 179 to the point where your business income reaches zero. However, bonus depreciation can create or increase an NOL. This flexibility can make a dramatic difference for owners experiencing uneven income years, large capital outlays, or practice transitions. In short, if your strategy involves intentionally driving income lower than zero (for example, to offset other income or carry forward a loss), bonus depreciation is a tool that allows it.
State Conformity
Section 179 is widely recognized by states—although some impose smaller deduction limits. These state-level caps still typically cover the spending patterns of most clinics. Bonus depreciation is a different story. Many states do not follow the federal rules and will not allow 100% expensing. This can lead to your federal taxable income and state taxable income sometimes significantly moving in different directions. Owners in high-tax states may need to account for this mismatch.
Should You Use Accelerated Depreciation?
Understanding the rules and differences between bonus depreciation and Section 179 is only the first step. The real question may be whether accelerating depreciation—through bonus depreciation or Section 179—supports your multi-year tax strategy.
Depreciation is an asset-by-asset decision. Practices undertaking large projects, such as office build-outs or relocations, often obtain cost segregation studies that break assets into multiple categories with lives ranging from three to over 20 years. Each category may favor a different depreciation method. For many clinicians, the goal is not simply to minimize taxable income in the current year. Your most effective lifetime tax strategy typically involves:
- Avoiding high marginal brackets
- Capturing low brackets when possible
- Navigating key phase-out thresholds
As covered in prior articles, phase-outs for items such as qualified business income deduction (QBID) and state and local tax (SALT) deductibility can materially shift your marginal tax rate. Accelerating depreciation can be a powerful tool if it keeps income out of top brackets or helps maintain eligibility for these high-value deductions.
However, accelerating too much depreciation in the wrong year can backfire. If bonus depreciation pushes your income into very low brackets (12%, 22%, or 24%) but leaves future years exposed to the top marginal rates once depreciation is exhausted, you may unintentionally increase your lifetime tax bill.
Final Thoughts
The OBBBA’s reinstatement of permanent 100% bonus depreciation is a powerful opportunity for practice owners. But like any powerful tool, it should be used strategically. Choosing between bonus depreciation, Section 179, or standard MACRS isn’t simply deciding whether to deduct everything now or later—it’s a multi-year tax-planning decision that should align with clinical income patterns, investment plans, and personal financial goals.
Sources:
https://tax.thomsonreuters.com/en/glossary/bonus-depreciation
https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions
About the author
Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension, and retirement planning. He leverages the practical application of his talents into wealth-generating and wealth-preservation strategies tailored to his clients’ individual needs and goals.
Services are offered through Focus Partners Wealth, LLC (“Focus Partners”), an SEC registered investment adviser with offices throughout the country. Registration with the SEC does not imply a certain level of skill or training and does not imply that the SEC has endorsed or approved the qualifications of Focus Partners or its representatives. Prior to January 2025, Focus Partners was named The Colony Group, LLC. Focus Partners has been part of the Focus Financial Partners partnership since 2011.
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