Full Expensing Is Back, and It Is Shaping the Capital Spending Boom
Permanent 100% bonus depreciation and the restoration of immediate research deductions have reduced the after-tax cost of exactly the investments companies are making most: data centers, equipment and engineering.
Two provisions of the 2025 tax law get far less attention than the deductions for tips and overtime, and both are doing more to shape the economy.
The first restores 100% bonus depreciation for short-lived assets on a permanent basis, letting businesses deduct the full cost of qualifying investments in the year they are placed in service rather than over a schedule of years.
The second restores immediate deductibility for research and development expenses, reversing the amortization requirement that took effect in 2022 and that had raised effective tax rates for research-intensive companies.
Why timing is worth real money
A deduction taken now is worth more than the same deduction spread over five years, because money has a time value and because inflation erodes the value of later deductions. The difference is largest when interest rates are high — which they are.
For a company deciding whether to buy equipment this year, full expensing reduces the after-tax cost immediately. That is the most direct lever the tax code has on capital investment.
The interaction with the AI buildout
The timing is conspicuous. Capital spending on data centers, servers, networking gear and electrical infrastructure is running at levels without precedent, with combined budgets at the largest cloud providers near $725 billion this year.
Much of that spending falls into categories eligible for immediate expensing. The tax treatment did not cause the AI investment cycle, but it materially improves its after-tax economics — which matters at the margin for every project that has to clear a hurdle rate.
The research provision's quieter effect
The amortization requirement that applied from 2022 had a specific and unintended consequence: it raised taxable income for companies whose main expense was engineering salaries, including many that were not yet profitable in cash terms.
Restoring immediate deductibility removes a tax bill that several software and biotechnology companies described as a genuine constraint on hiring.
The fiscal cost
Full expensing is expensive in the near term and less so over a long horizon, since deductions accelerated today are deductions not taken tomorrow. Revenue estimates depend heavily on the window chosen, which is why both supporters and critics can cite accurate numbers that appear to contradict each other.
