On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, enacting one of the most comprehensive tax and economic policy packages in recent history. With many provisions aimed at strengthening domestic production and long-term industrial investment, the legislation introduces a suite of changes that materially alter the tax landscape for manufacturers and distributors.
Below, we outline the most significant provisions of the OBBBA for industrial businesses as they navigate the new tax environment.
Permanent 100% Bonus Depreciation
The OBBBA permanently reinstates 100% bonus depreciation under IRC §168(k) for qualifying property placed in service on or after January 19, 2025. This includes machinery, equipment, vehicles, and certain improvements to nonresidential real property. The provision applies to both new and used property, eliminating the phase-down schedule that had been in effect under prior law.
What This Means: For manufacturers and distributors, this change enables the immediate expensing of production equipment, warehouse upgrades, and fleet additions, potentially helping accelerate modernization efforts and reducing taxable income in high-investment years. Businesses planning major capital purchases may want to revisit project timelines to align with the restored deduction.
Expanded Section 179 Expensing
Effective for tax years beginning after December 31, 2024, the OBBBA increases the maximum Section 179 deduction to $2.5 million, with a phase-out threshold of $4 million. Both amounts are indexed for inflation. This provision allows businesses to immediately expense the full cost of qualifying equipment, software, and certain improvements to nonresidential real property, rather than depreciating them over time.
What This Means: M&D companies investing in automation, logistics systems, or facility improvements may benefit from greater flexibility in managing taxable income, especially when coordinating with bonus depreciation to optimize deductions.
Qualified Production Property (QPP) Incentive
The OBBBA introduces a new 100% deduction for Qualified Production Property (QPP): a category of newly constructed nonresidential real property primarily used for manufacturing, production, or refining tangible personal property.
To qualify:
- Construction must begin after January 19, 2025
- The property must be placed in service before January 1, 2031
- The deduction applies to new buildings and improvements, but excludes property used for office, administrative, lodging, parking, sales, research, software development, or engineering functions.
What This Means: This provision provides a powerful incentive for companies to invest in new production facilities. Businesses planning plant expansions or infrastructure upgrades may benefit from evaluating whether their projects meet the QPP criteria for full expensing. This could significantly reduce the upfront tax burden of long-term capital projects.
PTET Deductibility Preserved
The OBBBA preserves the federal deductibility of state and local taxes paid at the entity level under elective Pass-Through Entity Tax (PTET) regimes. This provision allows partnerships and S corporations to bypass the $10,000 SALT cap that applies at the individual level.
What This Means: For manufacturers and distributors structured as partnerships or S corporations, this provision helps preserve a valuable federal deduction for state taxes, particularly in high-tax states like New York and New Jersey. PTET elections can reduce overall tax liability; however, businesses should still evaluate the impact annually, taking into account ownership structure, income levels, and state-specific rules.
Expanded Interest Deduction
The OBBBA reinstates the EBITDA-based limitation under IRC §163(j) for tax years beginning after December 31, 2024. This change reverses the EBIT-based limitation that has been in effect since 2022, allowing businesses to recapture depreciation, amortization, and depletion when calculating adjusted taxable income (ATI) for the 30% cap on business interest deductions.
What This Means: Manufacturers and distributors that rely on debt to finance equipment, inventory, or facility expansion may now deduct more interest expense, improving after-tax cash flow and enhancing the economics of capital-intensive growth strategies. This change may also influence how companies structure future financing arrangements.
Research and Development (R&D) Expensing
The OBBBA repeals the TCJA’s requirement to amortize domestic R&D expenditures over five years. Businesses may now immediately deduct eligible U.S.-based R&D costs for tax years beginning after December 31, 2024. Businesses with average gross receipts of less than $31 million may elect to apply the new rules retroactively to tax years beginning after 2021. This retroactive relief may be claimed by amending prior returns or through a one-time “catch-up” deduction in 2025 or spread over 2025 and 2026. Foreign R&D expenditure remains subject to a 15-year amortization period.
What This Means: M&D companies investing in product design, process engineering, or proprietary manufacturing technology can now fully deduct qualifying R&D costs in the year incurred. Smaller and mid-sized businesses may benefit from retroactive deductions that free up cash or generate refunds.
Opportunity Zone Incentives
The OBBBA makes the Opportunity Zone (OZ) program permanent, replacing the original sunset date of December 31, 2026, with rolling ten-year designation cycles beginning on July 1, 2026. Governors may nominate new zones every ten years, with each designation lasting a decade. The law also introduces enhanced compliance and reporting requirements for Qualified Opportunity Funds (QOFs), including annual IRS disclosures and public reporting on community impact.
What This Means: For manufacturers and distributors, this permanence supports long-term planning when evaluating locations for new production or distribution facilities. The continued ability to defer capital gains, with a 10% basis step-up after five years, offers a compelling incentive for reinvestment in economically underserved areas.
Strategic Considerations for Manufacturing and Distribution
The OBBBA introduces a range of permanent and expanded tax incentives that can reshape how manufacturers and distributors plan, invest, and grow. To make the most of these changes, businesses should consider:
- Revisiting capital investment plans to utilize permanent 100% bonus depreciation, expanded Section 179 expensing, and the new Qualified Production Property (QPP) deduction.
- Reviewing R&D activities to determine eligibility for immediate expensing under the revised Section 174 rules, including retroactive deductions for smaller businesses.
- Factoring Opportunity Zones into long-term site selection, especially for new production or distribution facilities.
- Modeling multi-year tax impacts under the revised depreciation, interest deduction, and QBI rules to optimize cash flow and tax liability.
- Reevaluating entity structure and state-level tax elections, particularly for pass-through businesses leveraging the PTET workaround and enhanced QBI deduction.
Webinar Recording Now Available
On Thursday, July 10, from 12:00 to 1:00 p.m. EDT, Grassi’s tax professionals hosted a live webinar exploring the key provisions of the One Big Beautiful Bill and what they mean for your business or personal tax strategy. Attendees heard directly from our advisors as they shared practical insights and planning considerations under the new law.
Tailored Guidance for the OBBBA
The One Big Beautiful Bill Act marks a significant shift in federal tax policy, with broad implications for the manufacturing and distribution sector, particularly given the industry’s capital-intensive nature and ongoing focus on innovation and supply chain optimization.
Contact us or reach out to a Grassi advisor today to assess impacts, identify opportunities, and develop strategies tailored to your business under the new legislation.
