Bonus Depreciation Is Shrinking — CapEx Timing Matters More Than Ever

Miss the window and you could be leaving six figures on the table.

Bonus depreciation continues to phase down under current tax law, dropping to 40% in 2026 after several years at 100%. For retail and CPG companies, this shift materially changes how capital investments translate into near-term tax savings. Historically, a business could deduct the full cost of a store buildout, warehouse automation project, or manufacturing asset in the year it was placed in service. That benefit is now significantly reduced.

The practical impact is a meaningful timing difference in tax expense. Consider a $1 million warehouse automation investment: under current law, the immediate deduction is limited to $400,000, with the remaining $600,000 depreciated over the asset’s useful life. At a 25% effective tax rate, that difference translates to roughly $150,000 in delayed tax savings compared to what was available just a few years ago.

Finance teams should evaluate whether it makes sense to accelerate planned capital expenditures where feasible, and consider combining bonus depreciation with Section 179 expensing to maximize available deductions. However, Section 179 comes with its own limitations and phase-out thresholds for larger investments, so careful modeling is required before assuming full deductibility.

It is equally important to align CapEx timing with broader financial strategy. Accelerating deductions improves short-term cash flow, but it can create tension with EBITDA targets or investor-reported earnings. Finance leaders should model both the tax and financial reporting impact before making final timing decisions.

Bottom Line: CapEx decisions now carry greater tax and cash flow consequences. The timing of when you place assets in service matters more than it has in years.