How will the One Big Beautiful Bill (OBBB) impact the manufacturing industry? The recently enacted OBBB represents a significant shift in U.S. tax policy, particularly for the manufacturing sector.
The bill includes provisions designed to stimulate domestic investment, foster innovation and promote industrial growth. These provisions offer a suite of tax incentives that could reshape how manufacturers plan capital expenditures and R&D strategies. Some of the noteworthy provisions related to the manufacturing industry are as follows:
Full and immediate expensing for certain production facilities involved in manufacturing
This provision is one of the most impactful provisions for manufacturers in the tax bill. It allows businesses to deduct 100% of the cost of newly constructed qualified production property (QPP) in the year it is placed in service. QPP is nonresidential real property used by the taxpayer as an integral part of a qualified production activity. The deduction is available for new facilities that are involved in substantial transformation of a product such as manufacturing, refining, extraction and chemical production. It excludes areas used for offices, administrative spaces and parking structures. The property must be new, U.S.-based, and not previously placed in service. It applies to property placed in service between July 4, 2025, and before January 1, 2031 (construction of the property must begin after January 19, 2025, and before January 1, 2029). A 10-year recapture rule applies if the property’s use changes to serve a new purpose. Under the prior law, buildings of this nature were required to be depreciated over a 39-year period. An exception can be applied to used property acquired by a taxpayer after January 19, 2025, and before January 1, 2029, in which the special depreciation allowance is permitted under certain conditions. This provision is expected to accelerate capital investment in domestic production, factory construction and modernization by reducing the initial cost for new factories.
Bonus Depreciation and Section 179 Expensing
The OBBB also permanently reinstates 100% bonus depreciation for qualified property acquired and placed into service after January 19, 2025. This allows manufacturers to immediately expense machinery, tools and other tangible assets. Accordingly, the bill raises the §179 expensing limit to $2.5 million (phased out after $4 million), indexed for inflation after 2025. This is especially beneficial for small and mid-sized manufacturers investing in equipment and facility upgrades.
Research and Experimental Cost Deduction
The bill repeals the Tax Cuts and Jobs Acts’ amortization requirement for domestic R&D costs, restoring immediate expensing under §174 starting in 2025. Further, it provides retroactive relief for small companies with annual revenues less than $31 million to amend their tax returns and deduct these expenses for tax years 2022-2024. Alternatively, a taxpayer may elect a deduction for previously capitalized expenses in 2025 or over two years in 2025 and 2026. Larger companies are limited to electing one of the catch-up provisions for unamortized capitalized costs.
Section 163(j) Interest Deduction Relief
OBBB permanently reverts the §163(j) limitation from EBIT back to EBITDA for tax years beginning after December 31, 2024. Adjusted taxable income can be calculated without a reduction for depreciation, amortization or depletion, thereby allowing an increase in allowable interest deductions and particularly benefiting capital-intensive manufacturers.
The OBBB marks a transformative shift in U.S. manufacturing tax policy. By aligning tax incentives with realities of modern industrial investment—through full expensing, enhanced R&D treatment and expanded interest deductibility—OBBB empowers manufacturers to scale operations, embrace innovation and strengthen domestic production. As the sector adapts to this new landscape, proactive and strategic planning will be essential to fully leverage these provisions and drive sustained long-term growth.
If you have questions about how the OBBB may affect you or your business, please reach out to us at [email protected].
This article is part of our ongoing series on the potential impact of the One Big Beautiful Bill. You may view our full library on our OBBB Resource Center.
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