How the One Big Beautiful Bill Act benefits U.S. manufacturers
On July 4, 2025, President Trump signed into law H.R. 1, known as the One Big Beautiful Bill Act (OBBB). This bill extends the Tax Cuts and Jobs Act (TCJA) of 2017’s rate reductions and fulfills campaign promises around domestic production incentives and increasing U.S. manufacturing competitiveness.
The OBBB is particularly favorable to the manufacturing sector, addressing some of the unintended tax increases from the TCJA, like R&D expensing, and introducing new tax incentives, such as the full expensing of new manufacturing and production facilities.
Here are some of the most important provisions and potential OBBB benefits for manufacturing:
Domestic R&D expenditures
The TCJA required taxpayers to capitalize and amortize their research expenditures paid or incurred in tax years beginning after December 31, 2021. Domestic research expenditures were amortized over five years, and foreign research expenditures were amortized over 15 years.
The OBBB tax changes allow for taxpayers to immediately deduct domestic research expenditures paid or incurred in tax years beginning after December 31, 2024. Research expenditures attributable to research activities outside of the U.S. must continue to be capitalized and amortized over a 15-year period.
In addition, manufacturers with average annual gross receipts of $31 million or less will be permitted to apply this change retroactively to taxable years beginning after December 31, 2021, by filing amended returns to reflect this change. All taxpayers, regardless of size, that paid or incurred research expenditures in tax years 2022 through 2024 will be permitted to elect to accelerate the remaining, unamortized research expenditure amounts over a one- or two-year period.
Tax breaks for manufacturing equipment under OBBB
The One Big Beautiful Bill 100% bonus depreciation provision permanently extends this tax advantage for assets acquired and placed in service after January 19, 2025.
Prior to passage of the OBBB, bonus depreciation began to phase down 20% per year, beginning in tax year 2023. For tax year 2025, companies may claim 40% bonus depreciation for assets placed in service during the first 19 days of the year, and then are permitted to claim 100% bonus depreciation for assets placed in service the remainder of the year.
The OBBB increases the maximum amount a taxpayer may expense under Section 179 from $1 million to $2.5 million and increases the phase-out thresholds for tax years beginning after December 31, 2024.
The new $2.5 million Section 179 maximum will be phased out, dollar-for-dollar, as eligible expenditures exceed $4 million. Both the increased maximum and phase-out amounts are indexed for inflation.
Manufacturing or production facilities
The OBBB introduces a new tax incentive for the construction of manufacturing and production facilities. Generally, commercial buildings must be capitalized and depreciated over a 39-year recovery period. The OBBB allows manufacturers an additional first-year depreciation deduction equal to 100% of the adjusted basis of qualified production property (QPP).
QPP is nonresidential real property that must meet the following criteria to be eligible:
- The property must be used by the taxpayer as an integral part of a qualified production activity.
- The property must be placed in service in the United States.
- The property’s original use commences with the taxpayer.
- The construction of the QPP facility begins after January 19, 2025, and before January 1, 2029.
- The property is placed in service after July 4, 2025, and before January 1, 2031.
QPP only includes manufacturing and production areas. Offices, administrative services, parking, sales and engineering areas, etc., are not eligible as QPP, and costs associated with those areas are to be depreciated over their applicable useful lives or through other means of accelerated depreciation.
Qualified production activity is defined as manufacturing, production or refining of a qualified product, with such activities resulting in a substantial transformation of the property comprising the product.
Interest expense limitation
Since the passage of the TCJA, manufacturing companies’ business interest expense has been limited to the sum of the company’s business interest income and 30% of the taxpayer’s adjusted taxable income for the taxable year. Generally, adjusted taxable income relates to earnings before interest and taxes (EBIT).
The OBBB increases the maximum amount of deductible interest expense by changing the definition of adjusted taxable income for tax years beginning after December 31, 2024. Specifically, adjusted taxable income is computed without accounting for depreciation or amortization expenses, thereby changing the definition of adjusted taxable income to earnings before interest, taxes, depreciation and amortization (EBITDA) in lieu of EBIT.
Small businesses, currently defined as having average annual gross receipts of less than $31 million, continue to be exempt from the interest expense limitation.
OBBB provisions impacting S corporations and partnerships
Manufacturers organized as flow-through companies were beneficiaries of many of the OBBB tax provisions impacting individual taxpayers. Specifically, many of the TCJA provisions were extended and made permanent.
- The OBBB extends and makes permanent the 10%, 12%, 22%, 24%, 32%, 35% and 37% tax rates.
- The OBBB makes permanent the increased standard deduction, permanently repeals personal exemptions, permanently increases alternative minimum tax (AMT) exemption amounts and resets the AMT exemption phase-out amounts, indexing them for inflation.
- The OBBB makes permanent the 20% deduction for qualified business income, thereby effectively making the top marginal tax rate for U.S. manufacturing income 29.6%.
- The OBBB temporarily increases the SALT deduction cap to $40,000 (with a phase-out for taxpayers with modified adjusted gross income over $500,000) for tax year 2025. The cap will increase 1% each year through tax year 2029. The cap reverts to $10,000 in tax year 2030.
OBBB estate and gift tax exemption
The OBBB estate tax exemption permanently increases the estate and lifetime gift exemptions to $15 million for single filers and $30 million for joint filers, with both figures indexed for inflation. The new exemption amounts are effective in tax year 2026, providing much-needed certainty around succession and estate planning.
Other OBBB changes impacting manufacturers
The OBBB makes several other changes that can impact manufacturers on multiple levels:
- Numerous international tax changes, including a decrease to the foreign-derived intangible income and global intangible low-taxed income tax deduction rates, and various changes to the base erosion and anti-abuse tax regime.
- New reporting requirements for employee overtime, so that employees can qualify for the overtime deduction, if eligible.
- The OBBB expands the qualified small business stock (QSBS) gain exclusion for stock acquired after July 4, 2025.
- The OBBB makes permanent and modifies the limitation on excess business losses.
What didn’t make the final bill
Several tax provisions impacting manufacturers, either introduced in other legislation or touted on the campaign trail, did not make the final version of the legislation:
- A 15% C Corporation rate for U.S. manufacturing
- An increase to 23% for the deduction for qualified business income
- Increased revenue thresholds for favorable methods of accounting
Proactive steps for navigating OBBB manufacturing changes
Manufacturers should start by evaluating which provisions impact them. Many provisions are dependent upon size, structure and past filing positions.
Once companies understand the provisions impacting them, identify which have immediate impacts, such as amending income tax returns or changing your accounting methods.
Wipfli can help. Our manufacturing tax team combines a strong CPA foundation and industry experience to help maximize your potential OBBB tax benefits. Our dedicated professionals stay up to date with the latest tax changes, helping keep you informed and ready to act. And with over 90 years of experience in serving manufacturers, we understand how to turn a complex tax landscape into growth opportunities.
Reach out today and discover how we can help you leverage confident, smarter tax planning. You can also visit our policy updates page for the latest tax news.
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