Tax Provisions in the Proposed One, Big, Beautiful Bill Act That Manufacturers Need to Know About

Manufacturers should keep a close eye on Washington, D.C., this year. Indeed, many of the federal government’s tax and spending policies will have a direct impact on the U.S. manufacturing industry. Two top examples include the uncertainty surrounding tariffs and the now-enacted One, Big, Beautiful Bill Act (OBBBA).

The OBBBA was signed into law in July. The bill includes extensions of many provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire, as well as some enhancements and new provisions.

Here’s an overview of the major business tax provisions included in the new law that manufacturers need to know about:

Bonus depreciation. This additional first-year depreciation is available for qualified assets, which include tangible property with a recovery period of 20 years or less, such as manufacturing equipment. Under the TCJA, first-year bonus depreciation has been phasing down 20 percentage points annually since 2023 and is set to drop to 0% in 2027. It’s 40% for 2025.

Under the OBBBA, bonus depreciation resets to 100% for eligible property acquired and placed in service after January 19, 2025, and before January 1, 2030.

Section 179 expensing election. This tax break allows businesses to currently deduct (rather than depreciate over a number of years) the cost of purchasing eligible assets, such as equipment, furniture, off-the-shelf computer software and qualified improvement property. An annual expensing limit applies, which begins to phase out dollar-for-dollar when asset acquisitions for the year exceed the Sec. 179 phaseout threshold. For 2025, the expensing limit is $1.25 million and the phaseout threshold is $3.13 million. Both amounts are adjusted annually for inflation.

The OBBBA increases the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would continue to be adjusted annually for inflation.

Section 199A qualified business income (QBI) deduction. Created by the TCJA, the QBI deduction is currently available through 2025 to owners of pass-through entities — such as S corporations, partnerships and limited liability companies. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income. But it’s subject to additional rules and limits that can reduce or eliminate the tax benefit.

Under the OBBBA, the deduction is made permanent. Additionally, the deduction amount increases to 23% for tax years beginning after 2025.

Domestic research and experimental expenditures. The TCJA generally requires these expenses to be amortized over five years. The OBBBA temporarily reinstates a deduction for such expenses. Specifically, the deduction applies to eligible research and development costs incurred after 2024 and before 2030. Providing added flexibility, the bill allows taxpayers to elect whether to deduct or amortize the expenditures. (The requirement to amortize such expenses is suspended while the deduction is available.)

Pass-through entity “excess” business losses. Under the TCJA, business losses incurred by noncorporate taxpayers generally can offset a taxpayer’s income from other sources, such as salary, interest, dividends and capital gains, only up to an annual limit. “Excess” losses are carried forward to later tax years and can then be deducted under net operating loss rules. This limitation was extended by the Inflation Reduction Act and is scheduled to expire after 2028. The OBBBA makes it permanent.

Be aware that these are only some of the business-focused tax provisions in the OBBBA. For example, it also reduces or rescinds many green-energy-related tax breaks.

Now that the legislation has passed, manufacturers should expect tax law changes this year. Turn to us for the latest developments.

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