Maximizing OBBB Tax Benefits for Manufacturers

October 7, 2025

By Jenn Faust, CPA/PFS
Principal

The One Big Beautiful Bill (OBBB), enacted July 4, 2025, aims to incentivize domestic production and development by enacting and enhancing a suite of tax initiatives specific to manufacturers. 

Revived Section 174 R&D Expensing

The long-awaited Section 174 fix restores the ability to immediately expense domestic research and development costs, a critical tool for manufacturers investing in process and product innovation.

Full Expensing for Domestic R&D

• Available for tax years beginning after Dec. 31, 2024
• Option to capitalize and amortize over five years instead

Foreign R&D Costs

• Continues to require 15-year amortization

Recovery of Previously Capitalized Costs

• Large taxpayers may expense remaining unamortized 2022–2024 R&D costs in 2025 or expense half in 2025 and the remainder in 2026
• Small taxpayers (≤ $31 million average gross receipts) can either amend 2022–2024 returns to expense costs incurred in each year or utilize the large taxpayer options above

Enhanced Depreciation: Section 179 & 100% Bonus Depreciation

Manufacturers purchasing equipment and other qualified property can leverage accelerated depreciation to expense acquisition costs immediately.

Section 179 Updates

• Deduction limit raised from $1.22 million to $2.5 million
• Phase-out begins at $4 million of annual purchases
• Deduction is limited to taxable income and requires the costs be incurred in an active trade or business

100% Bonus Depreciation Reinstatement

• Applicable to qualified property acquired and placed in service after Jan. 19, 2025
• Made permanent with no phase-down
• No maximum limit and does not require the costs be incurred in an active trade or business

Strategic Action Plan for Manufacturers

• Map capital projects by contract date, construction start and placed-in-service date
• Perform cost segregation studies on new facilities to isolate QPP components
• Review lease agreements for self-rental or related-party issues
• Align R&D expensing with product development and peak cash-flow periods
• Coordinate Section 179 elections with year-end purchases and income forecasts

Qualified Production Property (QPP)

Qualified Production Property allows 100% bonus depreciation on nonresidential real property integral to qualified production activities (QPA), including manufacturing, agriculture, chemical production and refining.

Eligibility

• Placed in service in the U.S. between Jan. 19, 2025, and Dec. 31, 2030
• Construction begins after Jan. 19, 2025, and before Jan. 1, 2029
• Property must be new original use property to the taxpayer

Exclusions

• Administrative office, sales, R&D, software development and engineering spaces
• Restaurants, cafés and on-site retail food prep buildings
• Leased property

Illustrative Impact

A $5 million facility with 20% nonproduction space. Under pre-OBBB rules, depreciation yields a $128,000 first-year deduction. However, QPP treatment allows $4 million immediate expensing plus $25,000 of regular depreciation, for a total $4.025 million first-year deduction—potentially $1.5 million in federal tax savings.

By aligning capital expenditures and R&D strategies with these enhanced provisions, manufacturers can maximize cashflow, support innovation and maintain a competitive edge in a capital-intensive industry.