OBBBA Unlocks Immediate Tax Savings for Manufacturers
Published on by Lauren Huster in Manufacturing, Tax Services
The One Big Beautiful Bill Act (OBBBA) has announced a new opportunity for manufacturers and producers: the ability to immediately deduct 100% of the cost of qualifying production facilities. This provision, known as Section 168(n), goes beyond the traditional scope of bonus depreciation.
For the first time, not only equipment and machinery but also the buildings where products are made may qualify for immediate expensing. For manufacturers planning new facilities or expansions, this change could transform capital investment strategies and free up significant cash flow.
How OBBBA changes the rules
Traditionally, manufacturers have been able to depreciate equipment quickly through bonus depreciation, but production buildings were different as they typically required depreciation over 39 years. Under OBBBA, qualifying production facilities may now have their full cost deducted in the year the property is placed in service, a change that could reshape capital investment strategies.
For businesses planning major investments in 2025 and beyond, this could be a game-changing tax benefit that allows you to reinvest sooner in growth, expansion, or other strategic priorities.
What qualifies under Section 168(n)
To qualify, a facility must meet specific requirements. The property must be used as an integral part of manufacturing, production, or refining activities in the United States. Construction must begin after January 19, 2025, and before January 1, 2029, with the facility placed in service before January 1, 2031.
Agricultural and chemical production facilities are also included, but areas of buildings used for offices, administrative functions, research and development, or sales activities are excluded. Careful cost segregation and documentation will be critical to capturing the full benefit of this provision.
In addition, the original use of the facility must begin with the taxpayer, as previously operated production facilities are not eligible. However, a special rule applies to certain existing properties that haven’t been used in production activities since January 1, 2021.
Strategic considerations for manufacturers
While the immediate deduction offers major cash flow advantages, businesses need to weigh strategic considerations. The provision comes with a 10-year recapture rule, meaning if the facility ceases qualified production use within 10 years, some of the tax benefits will need to be recaptured. This is most advantageous for facilities expected to remain in long-term production use, rather than multipurpose buildings where activities may shift over time.
Companies will also need to carefully model the interaction with other provisions, such as net operating losses, interest limitations, and state tax considerations, to ensure the deduction aligns with broader tax strategy.
Don’t overlook state tax complications
State tax treatment adds another layer of complexity. States may or may not conform to the federal provisions, and those that typically decouple from bonus depreciation may do the same here. For manufacturers operating across Ohio, Kentucky, Indiana, or other regions, state-by-state analysis will be essential to avoid surprises and properly plan for varying tax impacts.
Taking action now
For manufacturers planning capital investments in 2025 and beyond, this is an important time to reassess options. Capital expenditure plans should be reviewed to identify potentially qualifying projects and determine whether construction timelines align with the OBBBA deadlines. Careful modeling of the potential tax impact will be essential, since immediate expensing provides significant benefits but may not be the optimal choice in every situation.
Working with an experienced tax team that understands both manufacturing operations and complex depreciation rules offers the best path to maximizing the opportunity while minimizing potential risks.
The bottom line
The expansion of bonus depreciation to production facilities under the OBBBA is one of the most significant manufacturing tax incentives in years. For companies looking to invest in their production capabilities, this provision represents a rare opportunity to accelerate deductions, boost cash flow, and create a stronger foundation for growth.
Have questions about how the OBBBA could impact your manufacturing tax strategy? Contact us today to schedule a free consultation with one of our tax advisors. You may also be interested in how the OBBBA affects individuals and businesses. You can find our entire coverage of the OBBBA here. As always, we’re here to help.
