OBBBA tax provisions to boost US manufacturing and business

by Jack Millhouse & Tony Lomba

The One Big Beautiful Bill Act (OBBBA), enacted in the United States in 2025, introduces sweeping tax reforms to revitalise US manufacturing and enhance business competitiveness. The act’s key provisions focus on incentivising domestic production, capital investment, and innovation.

100% bonus depreciation

OBBBA restores and makes permanent 100% bonus depreciation for eligible assets placed in service after 19 January 2025. Businesses can now fully deduct the cost of new or used tangible property (with a recovery period of 20 years or less) in the year placed in service, rather than depreciating over several years. This change improves after-tax cash flow and encourages reinvestment.

Expansion of qualified production property

A new elective 100% expensing regime for “qualified production property” (QPP) under Internal Revenue Code (IRC) §168(n) allows immediate expensing of non-residential real property used in manufacturing – property that previously required 39-year depreciation. This provision incentivises building manufacturing facilities in the US.

R&D deductibility expansion

OBBBA restores full and immediate deductibility of domestic research and development (R&D) expenses for tax years beginning after 31 December 2024, under new IRC §174A. Foreign R&D expenses must still be capitalised and amortised over 15 years. In some cases, retroactive expensing is allowed for R&D costs incurred in 2022–2024, enabling deductions over one or two years. This expanded deductibility further motivates US-based R&D.

Other favourable provisions

Section 179 deduction: The maximum deduction increases from USD 1 million to USD 2.5 million, with the phase-out threshold rising to USD 4 million, effective 2025 – especially beneficial for small businesses.
Interest expense deductibility: The law permanently reinstates the Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA)-based limitation, allowing larger interest deductions.
Section 199A deduction: The 20% deduction for qualified pass-through entities is made permanent, benefiting US-based partnerships and S corporations.

Additional considerations

Not all states conform to federal expensing and depreciation rules, so businesses must review state law for conformity and potential state tax impacts. OBBBA also modifies the Foreign-derived Intangible Income (FDII) and Global Intangible Low-taxed Income (GILTI) regimes, affecting deduction percentages and expense allocations for multinationals.

Taxpayers should ensure proper allocation of purchase price in asset acquisitions, maintain documentation for QPP and R&D deductions, and comply with new reporting requirements.

Conclusion

OBBBA’s tax provisions represent a comprehensive, pro-growth approach to strengthening US manufacturing and business. By making 100% bonus depreciation permanent, expanding immediate expensing, restoring R&D deductibility, and enhancing other incentives, the legislation aims to foster a robust and sustainable American manufacturing ecosystem.

Tony Lomba and Jack Milllhouse are International Tax Directors with Mowery & Schoenfeld. Tony focuses on optimising cross-border restructuring, M&A tax diligence, and tax minimisation engagements. Jack specialises in directing inbound, outbound, planning, consulting, and startup engagements.