Leveraged Bonus Depreciation: Why Quality Opportunities May Become the Real Constraint

The return of permanent 100% bonus depreciation has created a significant opportunity for business owners and investors seeking to reduce current taxable income.

Under the legislation commonly called the One Big Beautiful Bill Act, qualifying property acquired and placed in service after January 19, 2025, may generally be eligible for a 100% first-year depreciation deduction. Unlike the previous version of the law, the restored deduction is not scheduled to phase down.

But permanent does not mean unlimited.

Bonus depreciation itself is not subject to a national allocation that can be exhausted. The assets, financing, operating infrastructure, and properly structured investments needed to produce a defensible deduction are another matter.

As awareness of leveraged bonus-depreciation strategies grows, the practical constraint may shift from what the tax code permits to whether investors can find quality opportunities capable of satisfying the requirements before the end of a particular tax year.

What Is Leveraged Bonus Depreciation?

Leveraged bonus depreciation is not a separate IRS program. It is a structure that combines investor capital with borrowed money to acquire qualifying depreciable property.

These strategies primarily utilize Section 168(k) of the Internal Revenue Code, which permits an additional first-year depreciation deduction for qualifying property. Partnership-based programs may also rely on Sections 704(d) and 752, which govern a partner’s basis and treatment of partnership liabilities.

Consider a simplified example. An operating partnership combines:

• $250,000 of investor equity
• $750,000 of financing
• $1 million of qualifying equipment

If the equipment is acquired, placed in service, and otherwise eligible, the partnership may be able to claim bonus depreciation based on the equipment’s qualifying depreciable basis.

This is what makes leverage attractive. The entity’s depreciable basis may exceed the cash initially contributed by its investors. A partner’s share of qualifying partnership liabilities may also increase the partner’s basis under Section 752, potentially supporting an allocated loss under Section 704(d).

However, that does not automatically mean an investor contributing $250,000 can immediately deduct $1 million. The amount and timing of any usable deduction depend on the investment’s financing and operations, as well as the investor’s basis, at-risk status, participation, income, and other tax circumstances.

Why These Strategies Are Attracting Attention

Accelerated depreciation was already widely used before the restoration of the 100% rate.

IRS Statistics of Income data show that corporations reported approximately $386 billion of special depreciation allowances in 2017. By 2022, that amount had reached approximately $761 billion—an increase of nearly 97%.

The amount increased by approximately 16% between 2021 and 2022 alone.

Use was spread across several asset-intensive industries. In 2022, corporate special depreciation allowances included approximately:

• $191 billion in manufacturing
• $113 billion in information businesses
• $90 billion in retail trade
• $63 billion in real estate and rental and leasing
• $58 billion in transportation and warehousing
• $56 billion in wholesale trade

That data predates the recent restoration of permanent 100% bonus depreciation.

Government estimates indicate that permanent full expensing for qualifying business property could reduce federal revenue by approximately $363 billion from 2025 through 2034. Although that is a forecast rather than a measurement of deductions already claimed, it indicates that substantial utilization is expected.

Together, these indicators suggest that more capital may be directed toward qualifying assets and leveraged investment structures.

How Can a Leveraged Strategy Be Tax Compliant?

A leveraged bonus-depreciation strategy combines investor equity with legitimate financing to acquire qualifying business assets. Because depreciation is generally based on the eligible cost of the property, including properly structured financing, the resulting deduction may exceed the investor’s initial cash contribution.

Section 168(k) provides the underlying bonus-depreciation deduction. Sections 704 and 752 govern how partnership losses and liabilities may affect an investor’s basis, while Sections 465 and 469 contain the at-risk and passive-activity rules that can affect whether an allocated loss is currently usable.

For the strategy to be defensible, it must involve real assets, supportable valuations, genuine debt, legitimate business activity, and property placed in service during the applicable tax year. Each investor must also have sufficient basis, economic risk, and the appropriate tax circumstances to use an allocated loss.

Although 100% bonus depreciation is now permanent, quality opportunities remain finite. Sponsors can acquire, finance, and operate only so many assets within a year, particularly as year-end deadlines approach. Growing awareness may therefore create greater competition for programs combining substantial depreciation with sound underlying economics.

Why Availability Can Be Limited in Any Given Year

Permanent bonus depreciation removes the scheduled phase-down, but it does not remove the calendar.

Taxpayers seeking a deduction in a particular year still need qualifying property to be acquired and placed in service during that year. That creates practical limitations.

A sponsor can responsibly acquire and operate only a finite amount of equipment. Lenders have underwriting standards and closing timelines. Manufacturers and suppliers have production capacity. Appraisers, attorneys, accountants, and tax professionals also face substantial year-end workloads.

A quality opportunity may require:

• Commercially attractive asset prices
• Genuine and acceptable financing
• Creditworthy customers or counterparties
• Sustainable operating revenue
• Proper insurance and asset management
• Defensible valuations and documentation
• Timely delivery, installation, and operation
• A reasonable plan for debt service and disposition

More capital pursuing these ingredients can create greater competition, even though the underlying deduction remains available.

Investors are not competing for a limited number of federal tax deductions. They may be competing for access to investments that combine legitimate business operations, sound financing, acceptable risk, and the ability to place qualifying assets in service before year-end.

Why the Right Provider Matters

The value of a leveraged bonus-depreciation strategy depends heavily on how well it is organized and executed. An experienced provider brings together asset sourcing, financing, operations, valuation, documentation, and year-end placement-in-service requirements.

A strong provider also offers clear reporting, transparent economics, and an established plan for managing the assets throughout the investment. This combination of tax knowledge and operational experience helps turn a compelling tax opportunity into a well-supported investment strategy.

The strongest programs are those in which a capable organizer can clearly explain the structure, underlying business, projected tax benefits, and long-term plan—allowing bonus depreciation to enhance an investment built on sound economics.

The Next Constraint Is Quality

The return of permanent 100% bonus depreciation is likely to bring more capital into a market where the tax provision may be unlimited, but quality opportunities are not.

Assets must be acquired, placed in service, operated, valued, financed, and structured correctly. Investors must also have the appropriate tax profile to use the resulting deductions.

As awareness and participation grow, investors may face greater competition for programs offering both substantial depreciation and sound underlying economics.

The most valuable opportunities will not necessarily be those advertising the largest deduction. They will be those capable of supporting that deduction with real assets, genuine financing, responsible operations, and a credible investment thesis.

For investors with significant taxable income, leveraged bonus depreciation may be a strategy worth exploring with qualified tax, legal, and financial professionals.

This article is for general educational purposes and does not constitute tax, legal, or investment advice. The availability and timing of any deduction depend on the transaction documents, financing, operations, and the investor’s individual circumstances.