Understanding 100% Bonus Depreciation for Data Centers

Major technology companies are using a tax rule called 100% bonus depreciation to lower their tax bills. This rule allows them to deduct the cost of eligible equipment, like servers and racks for data centers, all at once. This is different from spreading the cost out over several years. This immediate deduction can significantly reduce a company’s taxable income in the year they make the investment.

Estimates suggest that this tax benefit could save large tech firms billions of dollars. For example, Microsoft’s annual report indicated that data center spending could lead to tax savings of up to $12 billion. While this figure might include other tax advantages, it highlights the substantial financial impact of bonus depreciation. One analysis estimated that five major tech companies received around $70 billion in tax breaks in 2025, with $27 billion of that amount coming from accelerated depreciation.

How Bonus Depreciation Works

Normally, when a business buys a large asset, like computer equipment for a data center, it deducts the cost over time through depreciation. This means the company claims a portion of the cost each year for several years. With 100% bonus depreciation, companies can deduct the entire cost of eligible assets in the same year they are placed in service. This shifts the tax savings forward, providing a larger benefit in the short term.

This rule is particularly impactful for data centers because hardware, including chips, servers, and racks, makes up a large portion of their costs. By deducting these expenses immediately, companies can lower their current taxable income. This doesn’t necessarily eliminate the cost, but it provides a financial advantage sooner.

Different Estimates, Similar Impact

It’s important to understand that different analyses may count tax benefits in various ways. One study looked at five companies—Amazon, Alphabet, Meta, Microsoft, and Oracle—and estimated their total tax breaks in 2025 at $70 billion, with $27 billion attributed to accelerated depreciation. Another analysis focused on four companies—Microsoft, Meta, Alphabet, and Amazon—and suggested they avoided $68 billion in taxes in 2025, including depreciation and other tax breaks. These figures are not directly comparable because they cover different companies and include varying sets of tax provisions. However, both highlight the significant financial impact of accelerated depreciation for these companies.

The Timing of Tax Savings

The 100% bonus depreciation rule was established by federal law in 2017. It was expanded in 2025, restoring the full deduction and making it a permanent feature. The primary effect of this rule is on the timing of tax deductions. When companies make large investments, such as building new data centers, the ability to claim immediate deductions can reduce corporate tax revenues in the short term. However, these deductions would have been claimed in later years anyway. The rule concentrates these tax benefits into an earlier period.

Legislative Proposals Regarding Data Center Incentives

There have been legislative efforts to address these tax incentives. House Democrats introduced the “Reverse Big Ugly Tax Breaks for Data Centers Act.” This proposed law aims to prevent data centers from taking advantage of accelerated deductions and Opportunity Zone benefits. Representatives Chris Pappas, Kristen McDonald Rivet, and Don Davis were among the sponsors of this proposal, which specifically targets federal incentives for data center projects.

State-Level Tax Exemptions

Beyond federal depreciation rules, state and local governments also offer tax incentives for data centers. For instance, Ohio reported that its sales tax exemption for the data center industry resulted in nearly $1.57 billion in forgone state revenue in 2025. Local exemptions added another $446.3 million. Following public concern, Ohio temporarily stopped accepting new applications for these exemptions. These state and local sales tax figures are separate from the federal depreciation deductions discussed earlier.

This article provides general information and does not constitute tax advice. It is recommended to consult with a qualified tax professional for guidance specific to your situation.

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