By Chad McArthur, Partner-in-Charge, Tax Service Group
Big tax changes are coming for manufacturers thanks to the One Big Beautiful Bill Act (OBBB).
Capital Investments
If you’ve been waiting for clarity on bonus depreciation, here it is. The OBBB makes 100% bonus depreciation permanent for most property acquired after January 2025. Even better, it adds a new allowance for “qualified production property,” such as manufacturing facilities placed into service by the end of 2030.
This is designed to help companies expand, modernize, and strengthen their supply chains to increase U.S. investment.
Interest Expense
By now, everyone is familiar with 163(j) and the havoc that has created for deducting business interest expense. Manufacturers often rely on debt to fuel growth — whether it’s upgrading production lines or expanding capacity. The old rules limited how much interest you could deduct, which made borrowing less efficient. For 2025, limitations still remain; however breathing room has been added which should hopefully allow you to deduct a much greater portion of your interest expense.
Under the OBBB, the business interest expense deduction limitation under IRC § 163(j) has been updated in several key ways:
§ Adjusted taxable income (ATI) is now calculated before reductions for depreciation, amortization, or depletion. This change generally increases the allowable interest deduction, as it results in a higher ATI base for the 30% limitation calculation.
§ Less favorably, The §163(j) limitation now applies to business interest expense before it is capitalized under other provisions (such as § 263A). This is a shift from prior law, where capitalized interest was not subject to the limitation until it was deducted. However, this rule does not apply to interest required to be capitalized under Section 263(g) (for certain hedges) or under Section 263A(f) (construction of designated property).
R&D
After years of amortizing research costs, manufacturers finally get a break. Beginning in 2025, U.S.-based R&D expenses can be expensed immediately and permanently. Research conducted overseas still has to be spread over 15 years, which puts a clear incentive on keeping innovation close to home.
With everything packed into the OBBB, there’s a lot for manufacturers to consider. Some of the tax changes could create real opportunities, while others may require a closer look at how you’re currently operating. Reach out to us to learn what’s changed, how it impacts your operations, and what steps you can take now to benefit from the new laws.
