Key provisions include expanded R&D expensing benefits and greater depreciation opportunities for equipment.
The new tax law known as the One Big Beautiful Bill Act offers some major benefits to manufacturers. Some of the key industry provisions include expanded R&D expensing benefits, greater depreciation opportunities for equipment, and production and manufacturing related tax credits and deductions.
Explore details to learn how your company can take advantage of the new and expanded benefits. For more details on general business and individual benefits, check out our comprehensive analysis of the new tax law.
Key benefits for manufacturers in the new tax law
Permanent extension of 100% bonus depreciation
The new law permanently reinstates 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. This allows manufacturers to expense the entire cost of equipment and certain building improvements in the year those costs are incurred, providing a substantial immediate incentive for reinvestment.
Expanded research and experimental expensing
Manufacturers can now permanently deduct 100% of domestic research and experimental expenditures paid or incurred for tax years beginning after December 31, 2024. Unamortized research and experimental expenditures from prior years can either be deducted in 2025 or split between 2025 and 2026.
Small business taxpayers (three-year average gross receipts of $31 million or less) can amend prior-year filings and request refunds for previously paid taxes on capitalized expenditures. However, the R&D tax credit must be reduced on the amended tax returns.
The requirement to capitalize and amortize foreign research and experimental expenditures and amortize over 15 years was retained.
Enhanced Qualified Production Property deductions
The new law created a deduction for Qualified Production Property (QPP), which includes non-residential real property used as an integral part of qualified production activity. Manufacturers can deduct 100% of the adjusted basis of such property in the year it’s placed into service. The property must be used in qualified production activity defined as manufacturing, production, or refining of tangible personal property. The original use of the property must begin with the taxpayer taking the QPP deduction.
This provision excludes properties used for administrative services, lodging, and other non-manufacturing activities. Construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031. A cost segregation study will be needed to breakout costs and determine the portion of the real estate qualifying as production property.
Advanced Manufacturing Investment Credit increase
The advanced manufacturing investment credit percentage was increased from 25% to 35% for property placed in service after December 31, 2025. This credit is for qualified investment in advanced manufacturing facilities with a focus on manufacturing semiconductors or semiconductor manufacturing equipment.
Non-industry specific business benefits in the new tax law
Qualified business income (QBI) deduction made permanent
The QBI deduction — which allows pass-through entities to benefit from a 20% deduction on qualified business income — was made permanent.
Interest expense limitation expansion
The interest expense limitation calculation was revised to again include an add back for depreciation, amortization, and depletion. This change is effective for tax years beginning after December 31, 2024.
If the new adjusted taxable income calculation in 2025 results in excess taxable income, it could create capacity to deduct interest expense disallowed in 2024 and prior years.
Qualified small business stock (QSBS) exclusion enhancement
QSBS benefits are significantly expanded and relax certain requirements:
- Increases gross asset test from $50 million to $75 million (inflation adjusted starting 2027)
- Increases lower gain exclusion from $10 million to $15 million (10x basis still available)
- Provides a reduced benefit if stock is held for less than five years (50% after three years, 75% after four years), while the 100% exclusion after five years remains in effect.
How CLA can help manufacturers take advantage of the new tax law
These changes present numerous opportunities and challenges for manufacturers. Businesses should work closely with their advisors to navigate the new tax landscape and help enhance their tax strategies under the new law.
Our firm is here to help you understand and leverage these provisions to benefit your manufacturing operations. Please reach out to us for a detailed consultation and personalized advice.