When a business buys equipment, it usually does not deduct the entire cost at once. Instead, the cost is spread across the asset’s expected life through depreciation.

A five-year asset, for example, is generally deducted over several years rather than entirely in the year it is purchased. Bonus depreciation accelerates that process. Current federal law restored a permanent 100% first-year depreciation allowance for certain qualifying property acquired and placed in service after January 19, 2025. In plain English, a business may be able to deduct the full qualifying cost in the first year instead of waiting through the normal depreciation schedule.

The word deduction is important because 100% bonus depreciation does not mean 100% tax savings. If $100,000 of equipment qualifies, the potential first-year deduction may be $100,000. For a C corporation taxed at the current 21% federal rate, that would represent an illustrative federal tax effect of $21,000, assuming the company can fully use the deduction. The actual result depends on taxable income, entity structure, state rules and other limitations.

The IRS generally includes tangible property depreciated under the Modified Accelerated Cost Recovery System with a recovery period of 20 years or less. Many types of business equipment can fall within that category, but every part of a project does not automatically qualify. Smart thermostats, sensors, gateways and controllers may potentially qualify based on their classification. Hardware, installation, software and recurring services may receive different treatment, so clear invoices and review by an independent tax professional matter.

The numbers can materially change an investment decision. Consider an illustrative 500-unit project costing $250,000, or $500 per unit. If the full basis qualifies and the owner is a C corporation taxed at 21%, the potential current-year federal tax effect would be $52,500. That would reduce the illustrative first-year after-tax investment to $197,500. If the property separately projects $100,000 in annual energy and operating savings, simple payback improves from 2.5 years to just under two years. These figures illustrate the calculation; actual costs, savings, qualifying basis and tax results will vary.

The provision is permanent, but the deduction follows the year the equipment is placed in service. For a calendar-year taxpayer, a qualifying system installed, operational and ready for use in December may be considered for that year’s deduction. If the same system does not become operational until January, the deduction may move to the following tax year. Waiting may also mean another year of avoidable energy use and another year without the operating benefit of the investment.

For owners responsible for property utility costs, the opportunity is to reduce a recurring expense while potentially receiving the tax benefit of qualifying equipment sooner. The investment math is increasingly attractive: lower energy costs to improve NOI, while bonus depreciation may reduce the project’s first-year after-tax cost. Energy saving technology reduces your energy costs, and current tax rules may make now an advantageous time to invest. Our clients are experiencing these cost savings and so should you! Visit trusthab.ai to learn how and schedule a demo.

Tax treatment varies by taxpayer and property classification. This article does not provide tax, accounting or legal advice. Property owners should consult their independent tax professional to determine eligibility and actual tax consequences.