Section 199A Expiration and Bonus Depreciation Phasedown Create Planning Uncertainty for Midwest Passthroughs

For closely held businesses across the Midwest — S-corporations, partnerships, and sole proprietorships that dominate the region's manufacturing and agricultural sectors — two federal tax provisions are driving planning conversations that can't wait for Congress to act.

The first is the Section 199A deduction, which allows qualified business income from passthroughs to be deducted at 20 percent on individual returns. That provision, created by the Tax Cuts and Jobs Act of 2017, is currently set to expire after December 31, 2025. The second is bonus depreciation, which allowed 100 percent first-year expensing of qualifying capital assets. That percentage dropped to 60 percent for assets placed in service in 2024 and falls to 40 percent in 2025 under current law. For more on the topic discussed above, see American Press Report.

Neither provision has been permanently extended by Congress. Reconciliation negotiations in the Senate remain unresolved, and the House-passed budget framework from earlier this year does not include finalized tax language. That leaves operators without a reliable baseline for multi-year capital planning.

What This Means for Manufacturers and Farm Operations

In the Upper Midwest, where closely held manufacturers and farm operations routinely make capital equipment purchases in the $500,000 to $2 million range, the degrading bonus depreciation schedule is not an abstraction. A piece of grain-handling equipment or a CNC machining center placed in service in 2024 generates a 60 percent first-year deduction under current law. The same purchase in 2026, if Congress takes no action, would fall back to standard MACRS depreciation schedules — potentially spreading deductions over five to seven years depending on asset class.

The National Federation of Independent Business, which tracks small and mid-size business sentiment, reported in its April 2025 survey that tax uncertainty ranked among the top three concerns for owners — above supply chain and below inflation. That survey covered approximately 2,600 respondents across all sectors.

Section 199A's potential sunset carries a separate set of implications. For a Midwest S-corporation with $800,000 in qualified business income, the deduction currently offsets $160,000 from taxable income. If it expires, the effective marginal rate for that owner increases materially — the magnitude depending on filing status and other income — without any change in the business's underlying performance.

Tax practitioners in the region say some clients are accelerating equipment purchases into 2024 and early 2025 to capture the higher bonus depreciation percentage. Others are waiting, hoping Congress extends or expands the provision retroactively. Both approaches carry risk.

Congressional action before the August recess appears unlikely given the Senate's current schedule. The Joint Committee on Taxation has not released a formal score on a full TCJA extension as of this writing, which complicates floor debate.

The practical takeaway for operators: work with a tax advisor now to model two scenarios — one where both provisions expire as scheduled, and one where they are extended at current rates. Waiting for legislative clarity before making capital allocation decisions is a reasonable posture for some, but it is not the same as having a plan.