Financing Option
Bonus Depreciation Financing for Production Line Equipment
Structure your production line equipment purchase to capture bonus depreciation. We finance loans and capital leases that preserve your first-year depreciation deduction.
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Bonus depreciation has been one of the most consequential tax provisions affecting manufacturing capital investment over the past decade. Under the Tax Cuts and Jobs Act of 2017, businesses could deduct 100 percent of the cost of qualifying property placed in service between September 27, 2017 and December 31, 2022. That percentage began phasing down beginning in 2023: 80 percent for property placed in service in 2023, 60 percent in 2024, 40 percent in 2025, and 20 percent in 2026 before the provision phases out entirely under current law. Congress may extend or modify these provisions, and manufacturers planning large capital purchases should factor the phase-down schedule into their timing decisions.
Unlike Section 179, bonus depreciation can generate a net operating loss. That is the structural difference between the two provisions that matters most to a manufacturing operation with variable year-to-year income. If the equipment purchase creates a deduction larger than your current-year taxable income, the resulting NOL can be carried forward to offset income in future profitable years. For a plant making a $2 million line investment in a year with modest profits, the ability to generate and bank an NOL is significant tax planning.
Financing does not disqualify the deduction. A manufacturer who finances a Complete Production Line Financing through a loan or capital lease can still claim bonus depreciation on the full purchase price in the year placed in service, regardless of how much of the purchase price has actually been paid. The deduction is against the cost basis of the asset, not the cash outlay.
Structuring Financing to Preserve the Deduction
The structure of the financing matters for deduction eligibility. To claim bonus depreciation (or Section 179), the transaction must be a loan or capital lease where the manufacturer is treated as the owner of the equipment for tax purposes. An operating lease, where the lessor retains economic ownership, transfers the depreciation to the lessor rather than the lessee.
When a borrower wants to preserve the depreciation deduction, we structure the transaction as a term loan or a dollar-buyout (capital) lease. The monthly payment, rate, and term are indistinguishable from an operating lease to the operator on the production floor. The accounting and tax classification is what differs. Our proposals make the structure explicit, and we coordinate with your CPA or tax advisor at the proposal stage so there are no surprises at year-end.
We also offer operating leases where the lessor takes the depreciation and passes the benefit back to the lessee through lower monthly payments. For operators who do not need or cannot use a large first-year deduction, an operating lease structured around current bonus depreciation rates can deliver a different kind of economics. Our FMV vs. $1 Buyout Lease covers this trade-off in detail.
Who Benefits Most from Bonus Depreciation Strategy
The operators who extract the most value from bonus depreciation are profitable manufacturers making significant capital investments in a single year. The provision is most powerful when the deduction exceeds current-year taxable income, because the resulting NOL has real future value. A plastics manufacturer with $800,000 in taxable income who buys $1.4 million in new Injection Molding Machine Financing can zero out the current-year liability and carry forward an NOL to shelter future income.
It is also valuable for manufacturers who are accelerating investment ahead of the phase-down schedule. The 40 percent rate in 2025 is still meaningful, and the 20 percent rate in 2026 is the last year before current law phases the provision out entirely. A manufacturer who was planning a $1.5 million equipment upgrade for 2027 has a concrete reason to pull that decision into 2025 or 2026: the tax treatment is materially better under current law.
Businesses in Automotive Manufacturing and Aerospace Manufacturing, where capital cycles are long and investments are large, are frequent users of this strategy. Equipment in these sectors often represents multi-year production commitments where the tax treatment of the capital investment changes the IRR of the decision.
Phase-Down Timeline and Planning Implications
The phase-down from 100 percent (2022) to 0 percent (2027 under current law) is not linear in its impact. Each year's reduction changes the calculus for equipment on the margin. A machine purchase that made sense at 100 percent may still make sense at 60 percent but needs the tax calculation revisited. For Robotic Assembly Cell Financing and automation investments that are being evaluated on IRR, the difference between 40 percent and 20 percent depreciation in the first year meaningfully shifts the payback period.
There is also a parallel conversation about Section 179 expensing, which remains at 100 percent for eligible property up to the annual dollar limit. The two provisions overlap in many situations and complement each other in others. A manufacturer with both a large capital investment and an income ceiling for Section 179 often uses both provisions in combination, taking the Section 179 deduction up to taxable income and applying bonus depreciation to the remainder to generate the NOL. Coordinate this with a CPA; the sequencing has to be done correctly to get the maximum benefit.
Plan Your Bonus Depreciation Purchase
If you have a capital purchase in mind for this year, let us structure the financing while your CPA maps the depreciation strategy. We fund in one to two weeks, so Q4 deadlines are manageable when we start early enough.
Questions About Bonus Depreciation Financing for Production Line Equipment
Clear answers on equipment eligibility, documentation, timing, and transaction structure before you send the file.
What is the bonus depreciation rate for equipment placed in service in 2025?
Under current law, the bonus depreciation rate for qualified property placed in service in 2025 is 40 percent. That means a manufacturer can deduct 40 percent of the qualifying equipment cost in the first year, with the remaining 60 percent depreciated over the regular MACRS schedule. The rate drops to 20 percent in 2026 and phases out in 2027 unless Congress acts to extend it. Always confirm current law with your CPA, as Congress has historically modified these provisions.
Can bonus depreciation create a net operating loss, and can that NOL be carried forward?
Yes to both. Unlike Section 179, bonus depreciation can reduce taxable income below zero, creating a net operating loss. Under current rules, NOLs generated after 2017 can be carried forward indefinitely and applied to offset up to 80 percent of taxable income in future years. This is one of the primary reasons large capital investments can generate multi-year tax benefits through bonus depreciation.
Does used equipment qualify for bonus depreciation?
Yes, under the rules enacted by the Tax Cuts and Jobs Act. Prior law restricted bonus depreciation to new equipment. The current rules allow the deduction on used property that is new to the taxpayer, meaning equipment purchased from another manufacturer or acquired at auction qualifies as long as the business has not previously used it.
How do I know whether to take Section 179 or bonus depreciation?
The two provisions are not mutually exclusive. A business can apply Section 179 first, then apply bonus depreciation to any remaining cost basis. The key distinction is that Section 179 cannot generate a loss (it is capped at taxable income) while bonus depreciation can. When income is high enough to absorb the full deduction, either works. When income is lower than the equipment cost, bonus depreciation or a combination of both is usually optimal. This is a question for your tax advisor with your specific numbers.
Does the financing structure affect whether I can claim bonus depreciation?
Yes. To claim bonus depreciation as the equipment user, the transaction must be structured so you are treated as the owner of the equipment for tax purposes. This means a loan or capital (dollar-buyout) lease. An operating lease transfers the depreciation to the lessor. We flag the tax characterization in every proposal so you and your CPA have the information needed to make the right choice.
Finance Your Bonus Depreciation Financing for Production Line Equipment
Send the equipment quote, seller details, price, deposit, and delivery schedule. The financing desk will review the file and return a practical next step.