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The Tax Advantage Hiding in Your Warehouse Automation Budget

Uncover hidden tax advantages with Section 179 and bonus depreciation to strengthen the automation business case, improve cash flow and accelerate growth.

by Tom Rozema

U.S. businesses have a major opportunity thanks to updates under the One Big Beautiful Bill Act (OBBBA). The policy was designed to drive investment in U.S. based operations, especially in warehousing and distribution. After years of smaller government incentives, the latest changes are even more generous, helping companies modernize faster and realize returns sooner.

Most automation projects get approved or denied based on the numbers. Not the robots. Not the software. The business case. The math has shifted, and the advantage is hiding inside the tax code. As of July 2025, distribution and fulfillment centers can leverage the warehouse automation tax deduction Section 179 and 100% bonus depreciation, two powerful tools that allow first-year write-offs on qualified automation equipment.

This blog explains how these updates change the way automation costs are recognized, improving cash flow and strengthening the business case for modernization. For leaders planning next year’s investments, now is the time to reassess the automation strategy and take advantage of these generous incentives.

Tax forms and documents on a table looking for tax advantages for warehouse automation - FORTNA

What is Section 179?

Section 179 of the IRS tax code isn’t new, but the latest update allows the full cost of qualified equipment to be depreciated upfront in year one instead of over several years.

Effective July 2025:

Deduction limit increased to $2.5 million
Phase-out begins at $4 million
Fully eliminated at $6.5 million

Eligibility depends on timing. The deduction only applies once equipment is placed in service and fully operational, not when the purchase order is submitted.

Since automation projects often take 12 to 18 months from design to implementation, planning early is critical. Go-live timing determines which tax year the deduction applies to, which is especially important for multi-phase installations or year-end projects. Planning ahead ensures the system qualifies, and the full deduction is captured in the intended tax year.

Bonus depreciation: second half of the equation

The Big Beautiful Bill also reinstated 100% bonus depreciation for qualifying equipment placed in service after January 19, 2025. Like Section 179, bonus depreciation allows companies to deduct the full cost of qualified equipment in the first year, but it generally comes with fewer restrictions, making it especially valuable for larger businesses with significant capital investments.

The key difference is how each incentive is applied. Section 179 requires an affirmative election, meaning businesses must actively choose it when filing taxes. Bonus depreciation applies by default unless a company opts out.

Section 179 and bonus depreciation can be used separately or together. Companies can choose one or both depending on their specific tax strategy and financial goals. To maximize first-year tax savings, many use both in combination. However, the IRS rules dictate a specific order of application:

Section 179 is applied first, up to the annual deduction amount.
Bonus depreciation applies to any remaining balance after Section 179 is taken.
Standard depreciation is calculated last, if any balance remains.

Together, these provisions allow companies to write off the full cost of automation equipment, up to the applicable limits, immediately.

Bonus depreciation often delivers the most direct and comprehensive benefits, while Section 179 offers greater flexibility to tailor deductions and capture potential state-level benefits. Used strategically, they can strengthen project ROI and significantly improve cash flow.

Robotic picking provides optimized and efficient order fulfillment - FORTNA

A real-world example

An existing distribution center invests $3.8 million in a new sortation and robotic picking system. Since the total purchase is below the $4 million threshold, the company can deduct the maximum amount. Section 179 applies first, followed by bonus depreciation.

$2.5 million deducted under Section 179 (new maximum)
Remaining $1.3 million qualifies for 100% bonus depreciation
Total first-year deduction is $3.8 million

Assuming a 21% corporate federal tax rate, that equals about $798,000 in potential savings from reduced tax liability. This capital can then be reinvested in workforce training, software optimization or additional automation investments.

Compared to standard depreciation, which spreads deductions over several years, this approach reduces taxable income and improves cash flow in the same year the system begins generating results. This strengthens the business case from day one.

What qualifies as deductible equipment?

Section 179 applies to tangible personal property, which includes most warehouse automation and material handling systems. Software can qualify when it supports and is deployed with automation investments. Used equipment may also qualify if it’s new to the business and meets IRS acquisition rules.

Examples of qualifying equipment:

Automated storage and retrieval systems (AS/RS)
Conveyor and sortation equipment
Autonomous mobile robots (AMRs)
Racking, shelving and smart storage systems
Warehouse execution, control and management software (WES, WCS, WMS)
Forklifts, robotic palletizers, scanners and sensors

Permanent building improvements such as foundations, HVAC systems or parking lots are excluded because they aren’t considered tangible personal property. If equipment can be moved, repurposed or resold, it likely qualifies.

Why this matters for warehousing and distribution leaders

Warehousing and distribution operations continue to face pressure from labor shortages, rising wages, growing service expectations, and limited access to capital. Every investment competes for funding, and supply chain leaders must present business cases that prove measurable financial value.

That’s where Section 179 and 100% bonus depreciation deliver real impact. These incentives make automation upgrades easier to justify by improving ROI, strengthening cash flow and accelerating returns through full first-year deductions. In a constrained capital environment, the immediate financial benefit can be the deciding factor that moves a project from pending to approved.

Warehouse automation is one of the most effective ways to optimize throughput and reduce costs, and the latest tax code now aligns financial returns with operational needs.

Key benefits:

More compelling ROI: Full deduction applied in year one instead of over multiple tax years
Improved cash flow: Immediate tax benefits provide greater flexibility to reinvest capital

This results in:

Faster approvals: Year-one advantages justify automation business cases
Enables growth: Strong cash position supports additional investments

Benefits and results:

More compelling ROI
Improved cash flow
Faster approvals
Enables growth

Next steps

1. Confirm eligibility with a tax professional experienced in industrial automation and current tax codes.

2. Model potential savings using traditional depreciation versus Section 179 and bonus depreciation.

3. Align project timelines so systems go live within the desired fiscal year.

4. Keep documentation on asset type, purchase date and commissioning records.

FORTNA Can Help

The federal government wants U.S. supply chains to stay competitive, and Section 179 and bonus depreciation are the strongest tools available to support that goal. The opportunity is real, and it’s hiding in your warehouse automation budget.

FORTNA helps leaders turn that opportunity into action. Our teams plan, design and deliver automation strategies that align operational goals with measurable financial results. We work with customers to model tax impacts, quantify tax-adjusted ROI and build business cases that win approval.

Timing matters, and now is the time to act. Take advantage of these incentives to lower tax liability, improve cash flow and reinvest in growth with FORTNA as your automation partner.

Uncover hidden tax savings today

Disclaimer: This information is for illustrative purposes and does not constitute tax advice. Please consult a qualified tax professional to determine how the latest tax code applies to your specific financial situation.

FAQs

Does Section 179 apply in the contract year or when the system goes live?
It applies in the year the system is placed in service. Installation and commissioning should be scheduled with that timing in mind.

Can used equipment qualify?
Yes. Used equipment does apply under first-year deduction rules if it is new to the business and meets IRS acquisition rules.

Is this for small businesses only?
No. The updated limits and restored bonus depreciation support mid-market and enterprise-level operations as well.

Does software qualify?
Yes. Warehouse execution, control and management software (WES, WCS, WMS) can qualify when installed with tangible automation equipment.

What if the project spans two years?
The deduction follows the go-live date, the year the system becomes operational, not when the purchase order was signed.

Can Section 179 and 100% bonus depreciation be used together?
Yes. Section 179 is applied first, and 100% bonus depreciation can be applied to any remaining cost of qualifying equipment placed in service after January 19, 2025.

Do phased automation projects qualify if only part of the system goes live?
Yes. Each phase qualifies separately once that portion is placed in service. If a system is commissioned in stages, deductions can be taken as each phase becomes operational.

About the author

Tom Rozema

Chief Commercial Officer

Tom leads growth and organizational transformation for the global commercial organization, responsible for sales, marketing and business development. Leveraging more than 20 years of commercial experience at JR Automation, Honeywell, BASF and Daimler/Chrysler and Ford, he drives initiatives that enhance customer engagement, expand offerings into new markets and accelerate business performance. Tom holds an MBA from the University of Michigan and a Bachelor of Science in Engineering from Western Michigan University.