CapEx Planning in a Post-OBBBA Environment: What Manufacturers Need to Know

In the wake of the One Big Beautiful Bill Act (OBBBA), manufacturers across the United States are revisiting their capital expenditure strategies for 2025 and beyond. The Act introduces and expands several powerful tax provisions that allow businesses to immediately expense the cost of assets acquired, rather than depreciating them over their useful lives.

These provisions are designed to rejuvenate U.S. manufacturing and incentivize businesses to invest on our home soil. Careful planning is paramount to optimizing the tax savings opportunities provided by the OBBBA, especially for manufacturers who routinely invest in large machinery, equipment and facilities.

100% Bonus Depreciation

The OBBBA made 100% additional first-year “bonus” depreciation permanent for qualified property, meaning the cost of qualified assets can be expensed in full when placed into service. This provision is effective for property placed into service after January 19, 2025 (on or after Inauguration Day), so careful consideration should be given to assets placed into service at the beginning of the 2025 tax year. If equipment was purchased before the effective date but was not set up for operations until after January 19, 2025, then the asset may qualify for 100% expensing.

Prior to the OBBBA, bonus depreciation was scheduled to phase down to 0% by 2027, with 40% for assets placed in service in 2025 and 20% for assets placed in service in 2026. The remaining cost of the asset would be depreciated over its useful life, which can range from seven years for machinery and equipment to 39 years for certain real property. As such, permanent 100% bonus depreciation is a huge win for manufacturers, helping them reduce their tax burden for years to come.

Section 179 Increased Thresholds

Like bonus depreciation, Section 179 expensing provides for the immediate write-off of qualified property. However, unlike bonus depreciation, Section 179 expensing is subject to certain thresholds and limitations and cannot generate a tax loss.

This prompts the question: Why would anyone claim Section 179 and not just claim 100% bonus depreciation? A few reasons:

1. 1. Several states do not allow bonus depreciation, resulting in significant increases to state-level income taxes;
   2. Section 179 is available for assets placed into service before January 20, 2025, unlike 100% bonus depreciation;
   3. Section 179 provides more flexibility, whereby it can be claimed on an asset-by-asset basis, whereas bonus depreciation requires every asset class to either claim 100% bonus or elect out of it; and
   4. As Section 179 is limited to taxable income, it may not always be advantageous to create a tax loss using bonus depreciation, as loss carryovers are subject to certain limitations.

For assets placed into service after December 31, 2024, the OBBBA enhanced Section 179 by:

• • Increased annual dollar limitation to $2.5 million (up from $1.25 million), allowing manufacturers to immediately write off more capital expenditures;
  • Extended phase-out threshold to $4 million (from $3.13 million), providing manufacturers with large annual capital spending to further use this provision; and
  • The taxable income limitation remains unchanged.

Qualified Production Property

Arguably, one of the most taxpayer-friendly provisions of the OBBBA, especially as it relates to manufacturers, is the new election to expense 100% of Qualified Production Property (QPP). Unlike bonus depreciation and Section 179 expensing, which are not permitted for most real property (i.e., buildings), the new QPP depreciation provision applies to nonresidential real property.

Over the past few months, you may have noticed large corporations launching initiatives to invest in U.S. manufacturing plants. This includes Apple’s $600 billion American Manufacturing Program, which aims to bring more of its supply chain and manufacturing to the U.S. over the next four years. While pressure from ongoing tariffs may have influenced this decision, it’s hard to ignore the significance of an immediate tax deduction of hundreds of billions of dollars.

While additional IRS guidance is expected but not fully released as of the date of this writing, here is what we do know:

QPP refers to the portion of a nonresidential real property that meets the following criteria:

• • The taxpayer is an integral part of a qualified production activity;
  • It is placed in service in the U.S. or any possessions of the U.S.;
  • The original use commences with the taxpayer;
  • Construction begins after January 19, 2025, and before January 1, 2029; and
  • The property is placed into service before January 1, 2031.

A Qualified Production Activity (QPA) is the manufacturing, production or refining of a qualified product, which includes tangible personal property other than certain food and beverages. Qualified Production Property (QPP) excludes the portion of real property, which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the actual manufacturing, production or refining of tangible personal property.

Note that once the QPP is placed into service, it must continue to meet the above use requirements for 10 years, or the deduction will be recaptured into income.

Strategize Now to Stay Competitive

The OBBBA’s depreciation reforms offer manufacturers substantial tax advantages by providing various means to expense capital expenditures in the year they are placed into service, including for certain real property. To capitalize on these benefits and stay competitive, proactive and strategic tax planning is more critical than ever.

One might think it’s best to acquire and write off assets by year-end 2025. However, that may not always be the case. Other tax provisions of the Act, including expensing previously capitalized Research and Experimental expenditures and more favorable interest expense deductibility, must be looked at in the aggregate.

Given the complexities of the OBBBA and the many tax provisions geared toward manufacturers, now is the time to meet with us to review and revise your capital expenditure plans for 2025 onward.

Contributing author: Anthony J. Cerchia, CPA, is a tax partner with over eight years of experience providing taxation and strategic tax planning for a wide range of clients, specifically within the manufacturing, automotive and healthcare industries. For more information on this topic, contact Anthony at acerchia@dmcpas.com or (315) 472-9127.