The law allows for the immediate expensing of all machinery and equipment, not just server racks.
Yesterday, Politico published an article with a knowingly misleading title for data centers’ enemies to pounce on: “Corporate tax payments plunge as AI feasts on new incentives.” The “incentives” the author refers to are from last year’s reconciliation law, the One Big Beautiful Bill Act (OBBBA), passed by Republicans and signed by President Trump.
The piece makes it sound like the law was designed to benefit data centers and AI companies:
The tech world is pouring oceans of money into chips, data centers, power supplies and other components of the artificial intelligence infrastructure. And that’s eligible for generous tax breaks on investments Republicans included in their 2025 tax cuts.
But then, it acknowledges right below that “tax incentives weren’t designed with AI in mind specifically — they’re available for all kinds of business investments.” In fact, the “incentives” described are nothing more than full and immediate expensing of all relatively short-lived business equipment and machinery. That happens to include servers, semiconductors, and almost everything else inside new data centers.
It’s not as though these investments were taxed before the law’s enactment. As capital investments, different kinds of machinery and equipment were assigned depreciation schedules by the IRS, and businesses could deduct a portion of their purchase cost every year until they were completely written off. Now, businesses can deduct the entire cost in the year of acquisition. The aim was to encourage capital investment by taxing it neutrally, removing the government’s added price of time and inflation.
That benefit only applies to what’s in data centers. The buildings themselves — along with nearly all other business structures — remain subject to depreciation schedules of 39 years. One category of structures was afforded full expensing by the OBBBA, but it wasn’t data centers. It was new factories.
So, no matter what some partisans who know better claim, Congress did not gut revenue to “give tax incentives for data center construction.” It merely stopped stretching the depreciation expense of all capital investments across many years. Companies that expense new equipment in 2026 will be unable to deduct a share of its cost in 2027, or any subsequent year.
Many state governments offer data centers true incentives by exempting them from general sales or property taxes. Those carveouts — as well as those for countless other industries — should be eliminated, and revenue from the broader tax base should be used to decrease rates for all businesses. On the federal level, however, immediate expensing of capital investments is a win for neutrality in the tax code, not special favoritism.