OBBBA Makes Tax Planning a Must for Manufacturers

The OBBBA includes both favorable and unfavorable tax changes affecting manufacturers. The following is what CFOs and tax directors need to know.

Accelerated cost recovery

Research and experimental (R&E) costs. The new Section 174A permanently reinstates the immediate deduction for domestic R&E expenditures for amounts paid or incurred in tax years beginning after Dec. 31, 2024. Foreign R&E expenses still are required to be capitalized and amortized over 15 years under Section 174. The new law allows taxpayers to elect to deduct, either in the first tax year beginning after Dec. 31, 2024, or ratably over two years, any remaining unamortized domestic R&E expenditures. Certain small businesses can elect to retroactively apply the OBBBA treatment of R&E expenditures to tax years beginning after Dec. 31, 2021, and file amended returns for all relevant tax years (2022 through 2024).

Additionally, Section 280C(c) was amended to bring back the requirement to reduce domestic R&E expenses by the amount of the research and development credit under Section 41 unless a reduced credit election is made.

These provisions apply to tax years beginning after Dec. 31, 2024.

Bonus depreciation. Effective for property acquired after Jan. 19, 2025, immediate 100% expensing of acquired software, equipment, machinery, leasehold improvements, and certain nonresidential interior improvements (qualified improvement property) is reinstated permanently.

Manufacturers planning large-scale capital investments should pay close attention to timing. For example, if a contract to acquire assets was in place before Jan. 19, 2025, those assets will not qualify for 100% bonus depreciation. Eligibility of self-constructed assets will depend on when construction begins.

Qualified production property. A new provision allows immediate expensing of nonresidential real property that is used to manufacture, produce, or refine a qualified product. Construction must begin between Jan. 19, 2025, and Dec. 31, 2028, and the property must be placed in service before Jan. 1, 2031. These significant tax benefits are directed specifically to increase U.S. capital investment, production capacity, and cost efficiency for manufacturers.

Section 179. For property placed in service in tax years beginning after Dec. 31, 2024, the maximum Section 179 deduction is increased from $1 million to $2.5 million with maximum Section 179 property additions increased from $2.5 million to $4 million (adjusted for inflation), effective for property placed in service in tax years beginning after Dec. 31, 2024.

Crowe observation

The OBBBA’s accelerated cost recovery provisions can translate into immediate tax savings and stronger cash flow for manufacturers.

Deductions

Section 163(j) limitation. Effective Jan. 1, 2025, the OBBBA permanently changes from using earnings before interest and taxes (EBIT) to using earnings before interest, taxes, depreciation, and amortization (EBITDA) to determine the income base for calculating the deductible portion of business interest. This change generally will result in a higher amount of deductible interest.

A taxpayer unfavorable provision in the OBBBA is the elimination of elective interest expense capitalization strategies to circumvent Section 163(j). Because this provision is effective for tax years beginning after Dec. 31, 2025, elective capitalization strategies still are available for 2024 and 2025 tax years.

Crowe observation

The reinstatement of the EBITDA-based limitation under Section 163(j) is a welcome change for manufacturers that rely on debt to finance expansion and modernization.

Corporate charitable deductions. The OBBBA adds a new floor for corporate charitable deductions, which only allows a deduction for amounts above 1% of taxable income. The floor is in addition to the existing rule that limits corporate charitable deductions to 10% of taxable income.

International tax

For tax years beginning after Dec. 31, 2025, the OBBBA raises the effective tax rates (ETRs) for net CFC-tested income (formerly global intangible low-taxed income), foreign-derived deduction-eligible income (formerly foreign-derived intangible income), and base erosion and anti-abuse tax to 12.6% (before the application of foreign tax credit), 14%, and 10.5%, respectively. The ETRs under the OBBBA are higher than those for 2025, but lower than the rates that would have taken effect under prior law after 2025. Notably, the elimination for deemed return on tangible assets, along with changes to expense allocation and foreign tax credit rules, are expected to affect the ETR increases. Most other international tax changes generally are effective for tax years beginning after Dec. 31, 2025.

Crowe observation

The international tax changes are a mixed bag. Manufacturers should proactively assess their global tax posture, evaluate how these provisions might affect their current operational model, and consider repatriation strategies, supply chain planning, and overall effective tax rate management.

Energy tax incentives

The OBBBA terminates the Section 179D deduction for energy-efficient commercial buildings for the construction of property that begins after June 30, 2026.

Additionally, it accelerates termination of the following credits:

• The Section 30C alternative fuel refueling property credit for property placed in service after June 30, 2026.
• The Section 30D clean vehicle credit for vehicles acquired after Sept. 30, 2025.
• The Section 45W commercial clean vehicle credit for vehicles acquired after Sept. 30, 2025.
• The Section 45Y and Section 48E credits for wind and solar for facilities placed in service after Dec. 31, 2027, unless construction begins before July 4, 2026. For tax years beginning after July 4, 2025, the credits are disallowed for a specified foreign entity or a foreign-influenced entity.

Crowe observation

The accelerated expiration of several energy-related tax incentives under the OBBBA presents a limited window of opportunity for manufacturers to capture the remaining benefits of terminating credits, accelerate project timelines, evaluate current investments, and implement strategic procurement plans.

Looking ahead

The OBBBA marks a pivotal shift in tax policy with far-reaching implications for manufacturers. While it includes some limitations, the legislation also provides strategic opportunities to enhance cash flow, manage global tax burdens, and accelerate investment. Manufacturers should consult their tax advisers to evaluate the impact of the new law on their particular circumstances.