The One Big Beautiful Bill (OBBB) that was signed into law in July 2025 introduces significant tax changes aimed at driving investment, productivity, and labor force stability in the U.S. manufacturing sector. These changes include the return of full bonus depreciation for equipment purchases, a new opportunity to expense certain types of facility construction, the reinstatement of immediate deductions for research expenses, a personal income exclusion for overtime pay, and a scheduled wind-down of several energy-related tax credits. Together, these provisions are designed to improve cash flow and support long-term planning for manufacturers.
Contents
- Enhanced Cost Recovery for Equipment Purchases
- New “Qualified Production Property” Expensing
- Immediate Deduction for Research & Experimental Costs
- Overtime Pay Tax Exclusion
- Phase‑Out of Select Energy Credits
- Putting It All Together
For manufacturers, tax policy plays a pivotal role in determining when and how to invest in equipment, expand facilities, and support workforce needs. The One Big Beautiful Bill delivers several updates to the tax code that are especially relevant to companies in this sector. These changes touch nearly every aspect of operational decision-making—from capital investments and building upgrades to research planning and employee compensation. Business leaders in manufacturing who understand the details now can plan around effective dates, maximize deductions, and avoid missed opportunities in the years ahead.
Enhanced Cost Recovery for Equipment Purchases
OBBB revives 100% bonus depreciation for qualifying machinery and equipment, allowing manufacturers to fully deduct the cost of these assets in the same year they’re placed in service. This treatment applies to both new and used property that meets the eligibility requirements and is placed in service after January 19, 2025. In addition, the limits for Section 179 expensing are raised, giving small and midsize manufacturers the ability to deduct a greater portion of capital investments upfront rather than over time. These updates are intended to make large purchases more financially manageable and to support modernization of production operations.
New “Qualified Production Property” Expensing
A new provision allows for immediate expensing of certain nonresidential real property used primarily in the manufacturing process. Known as Qualified Production Property (QPP), this category includes structures that directly support production, refining, or manufacturing activities. To qualify, the building must be newly constructed or substantially improved, and the work must begin after January 19, 2025. The completed property must be placed in service by the end of 2030. Unlike traditional building assets, which are typically depreciated over nearly four decades, property that meets these criteria can be fully expensed in the year it is placed in service. Office and administrative space are excluded from accelerated depreciation. This change creates a powerful incentive for manufacturers to invest in new plants or production-focused facility upgrades within the specified time frame.
Immediate Deduction for Research & Experimental Costs
OBBB repeals the prior requirement to spread domestic research and experimental expenses over five years. Under the updated rules, these costs can once again be deducted in full during the year they are incurred. For manufacturers engaged in developing new processes, refining production techniques, or testing new materials and systems, this represents a significant financial shift. The ability to deduct these expenses immediately improves after-tax cash flow and may also allow some businesses to revisit prior years through amended returns or catch-up deductions in 2025. This change is especially important for manufacturers that regularly invest in continuous improvement and innovation.
Overtime Pay Tax Exclusion
To support labor market participation and wage growth, OBBB creates a new tax benefit for individual workers. Up to $12,500 in annual overtime compensation may be excluded from taxable income for eligible employees. For joint filers, the exclusion rises to $25,000. While the wages remain subject to employment taxes and reporting, this exclusion provides additional take-home pay without additional employer cost. Manufacturers that depend on hourly labor and shift work may benefit from stronger retention and reduced overtime-related tax burdens for employees. Employers will be required to report qualifying overtime amounts separately, and payroll systems should be updated accordingly.
Phase‑Out of Select Energy Credits
Not all provisions in OBBB expand benefits—some reduce or eliminate tax advantages previously available. Several credits for energy-efficient equipment and renewable energy installations are now scheduled to phase out. These include incentives for systems such as solar panels, combined heat and power units, and certain production-related energy upgrades. While some grandfathering rules apply, eligibility for these credits will now be more closely tied to when construction begins and when the system is placed in service. Manufacturers planning facility upgrades involving energy technology should evaluate whether their project timelines align with the credit availability windows to avoid losing out on benefits.
Looking Ahead
The One Big Beautiful Bill offers manufacturers meaningful opportunities to reduce tax liabilities and increase investment flexibility. From immediate write-offs for machinery and buildings to restored deductions for research and improved tax treatment of overtime wages, the changes have the potential to directly support capital planning, innovation strategy, and workforce management. At the same time, the scheduled reduction of energy tax credits adds urgency to some project timelines. To make the most of what the bill offers, manufacturers should review their investment plans alongside these new rules and work closely with their tax advisors to structure transactions and initiatives accordingly. The window to act is open—but not indefinite. Thoughtful planning now will position your business to fully benefit from these sweeping changes.
Nick Lagoditz, CPA, joined ARB in 2016 as an associate and became a tax manager in 2022. He provides tax preparation and business advisory services, with a focus on partnerships, real estate professionals, and construction businesses. Previous to ARB, Nick worked at a large international firm for nearly two years.
