The One Big Beautiful Bill Act: Navigating a New Tax Landscape for Manufacturers

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) offers manufacturing companies tax incentives, streamlined deductions, and expanded credits designed to support domestic production and supply chain resiliency.

The bill introduces significant changes to how capital investments and R&D activities are treated for tax purposes, including changes to depreciation schedules and credit eligibility.

While taxpayers and tax professionals are waiting for IRS guidance on interpreting some of the changes, it’s not too early to review the new regulations and explore how they’re likely to apply to your organization.

The mid-year enactment of the act leaves the rest of the 2025 calendar year for companies to take advantage of the bill’s benefits and to identify opportunities for savings, growth, and strategic investment in U.S.-based operations.

The bill permanently reinstates 100% bonus depreciation for property placed in service after January 19, 2025, allowing companies to fully deduct the cost of eligible assets, such as machinery and equipment, in the year they’re placed in service. (Bonus depreciation enacted in 2017 was scheduled to phase down to 20% by 2026.) The return to full expensing provides immediate tax savings and improves cash flow.

OBBBA also introduces a temporary 100% depreciation deduction for Qualified Production Property (QPP). This provision, which applies to new, nonresidential manufacturing facilities located in the United States, is designed to jumpstart domestic facility development and strengthen supply chain resiliency.

To qualify, construction must begin between January 19, 2025, and December 31, 2028, and the facility must be placed in service by the end of 2030.

The property must remain in qualified production use for 10 years after being placed in service, or recapture rules will apply. Costs will need to be carved out for certain nonqualifying uses such as offices, administration areas, and similar non-production uses.

OBBBA also increases the Section 179 expensing limit to $2.5 million from $1 million, beginning January 1, 2025, and raises the phase-out threshold to $4 million from $2.5 million. The section allows businesses to deduct the full purchase price of qualifying equipment. These expanded limits provide more flexibility for manufacturers investing in smaller-scale upgrades or replacements.

Together, these changes offer manufacturers multiple paths to reduce taxable income and reinvest in growth.

OBBBA restores immediate expensing for domestic research and development costs, reversing the 2022 requirement to amortize them over five years. This shift allows manufacturers to accelerate the deduction for previously capitalized domestic research costs.  This deduction may be spread over one or two tax years beginning in 2025.  

Eligible small business taxpayers (defined as those with average annual gross receipts of $31 million or less) can choose to apply the new rules retroactively to tax years beginning after December 31, 2021, offering refunds or reduced liabilities for the tax years 2022, 2023, and 2024.  Taxpayers seeking retroactive relief must file amended tax returns by July 6, 2026.

Keep in mind that foreign research and development costs must still be capitalized and amortized over 15 years.

By reclaiming upfront deductions, companies gain stronger cash flow, greater flexibility for innovation, and more predictable tax planning to support ongoing investment in U.S. manufacturing.

Other impactful changes include updates to how businesses deduct interest expenses and qualified income (two areas that affect the bottom line for many manufacturers).

OBBBA restores the business interest deduction limitation to an EBITDA-based calculation, reversing the prior shift to EBIT. This is effective for tax year 2025.

As a result, companies can now deduct interest expenses based on earnings before interest, taxes, depreciation, and amortization—rather than excluding depreciation and amortization from the calculation.

For capital-intensive manufacturers, which tend to make large investments in depreciable assets, this change frees cash flow for operations and expansion.

In addition, the bill makes permanent the 20% Qualified Business Income (QBI) deduction for eligible entities, such as S corporations, partnerships, and sole proprietorships. (This deduction was originally set to expire in 2026 under prior law.)

With OBBBA, manufacturing companies gain long-term clarity and planning stability. The permanent nature of the QBI deduction enhances after-tax income and levels the playing field with C corporations, which are subject to a low, permanent flat tax rate of 21%.

Together, these provisions lower the cost of borrowing and provide tax savings.

OBBBA also includes several updates to international tax provisions that directly affect manufacturing companies with global operations.

For instance, OBBBA renames and revises two key international tax concepts. Global Intangible Low-Taxed Income (GILTI) is now called “Net CFC Tested Income,” and Foreign-Derived Intangible Income (FDII) is now “Foreign-Derived Deduction Eligible Income” or “FDDEI.”  This revision is not just a rebranding; it also eliminates the reduction for a deemed return on tangible assets (formerly known as “QBAI”), simplifying the calculation and aligning it more closely with financial reporting practices.

Other changes include:

These changes may impact manufacturers deeply, as they tend to have larger amounts of tangible assets to support their manufacturing process (especially those with controlled foreign corporations (CFCs) that materially participate in the manufacturing process). You should reassess how these changes impact your effective global tax rate and export-related deductions.

Additionally, OBBBA permanently increases the Base Erosion and Anti-Abuse Tax (BEAT) rate to 10.5% for tax years beginning after December 31, 2025. BEAT is a minimum tax targeting large corporations that make deductible payments to foreign affiliates, such as royalties or service fees.

The new rate increases the cost of shifting profits abroad, particularly for manufacturers with complex supply chains that involve related foreign entities. Companies subject to BEAT may need to reconsider their cross-border payment structures or evaluate whether shifting functions to the U.S. would reduce their overall exposure.

Lastly, the OBBBA introduces the new Section 899, which imposes a retaliatory tax on U.S. companies subject to what the IRS considers “unfair foreign taxes,” such as those under the OECD’s Pillar Two global minimum tax framework. This provision is designed to protect U.S. multinationals from additional foreign tax liabilities but may increase compliance burdens and the risk of double taxation for manufacturing companies with global operations.

In addition to the retaliatory tax, another change was made to help alleviate the risk of double taxation for manufacturing companies with global operations. Income sourcing rules, for purposes of income and expense allocation for the FTC, have been adjusted under the OBBBA such that inventory produced in the U.S., but sold through the foreign office or fixed place of business, can now be attributed (up to a maximum of 50%) to the foreign jurisdiction.

This significantly modifies the prior treatment that had a bright line test to source the income of such sales based solely on the location of where the inventory is manufactured, and should allow a portion of the taxes charged in those foreign jurisdictions to the fixed place of business to be used as a credit against any additional U.S. tax on the same source of income.

OBBBA also brings key changes for manufacturers investing in clean energy and advanced production. For instance, manufacturers interested in projects eligible for clean electricity tax credits must begin construction by July 4, 2026, or qualify by placing a project in service by December 31, 2027. After that, these credits phase out between 2025 and 2027 for wind and solar facilities.

OBBA also eliminated some energy-related incentives that manufacturers have taken advantage of in recent years:

If planned projects cannot be accelerated to meet these deadlines, state and local tax incentives may be available to help offset the costs for clean energy projects that no longer qualify for the federal tax credits.

The Advanced Manufacturing Investment Credit (AMIC) is preserved with enhancements, including a new credit for metallurgical coal. Tighter domestic content rules now apply, encouraging U.S.-sourced components and limiting foreign involvement.

Several of these provisions were made “permanent,” but tax provisions are never truly permanent since Congress holds the power to change any tax law. Taxpayers should take advantage of favorable tax laws while they are effective.

To make the most of the current changes, companies should take a proactive approach in several key areas:

With all these significant tax changes, it’s crucial to understand how they affect your business. Our team of tax professionals is ready to help you navigate the new regulations, identify opportunities for savings, and create a proactive strategy to maximize the benefits of the One Big Beautiful Bill Act.

Contact our tax team today to schedule a consultation and ensure your business is positioned for success in this new tax landscape.