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How the One Big Beautiful Bill Act Reshapes Tax Strategy for Manufacturing, Distribution and Infrastructure

In this video, Tax Partner Matthew Foster breaks down what the newly signed OBBBA means for businesses in manufacturing, distribution and infrastructure. From the return of 100% bonus depreciation to enhanced R&D deductions, discover how this legislation may unlock powerful tax-saving opportunities and spur long-term growth in your sector.

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Tax Code Updates Set to Energize US Manufacturing Businesses

The latest legislative overhaul of H.R.1, otherwise known as the One Big Beautiful Bill Act (OBBBA), is delivering sweeping updates to the US tax code, particularly targeting capital-intensive industries like manufacturing and retail. The bill seeks to solidify and expand tax advantages introduced in 2018 while correcting longstanding challenges for businesses seeking deductions and growth incentives. Here’s a breakdown of the key provisions and what they mean for companies moving forward.

Expanded Section 179 Depreciation: Immediate Incentives for Investment

One of the headline changes is the increase in Section 179 depreciation limits. This tax provision allows businesses to immediately expense capital improvements, encouraging investments in equipment and infrastructure. Under the new law:

  • The maximum deduction rises to $2.5 million annually
  • A phase-out begins after $4 million in equipment purchases

This change complements existing bonus depreciation policies, giving companies greater flexibility to deduct large investments rather than spreading them over several years.

Interest Expense Deduction Improvements

Prior to this bill, businesses were restricted to deducting only 30% of interest expenses, based on their earnings before interest and taxes (EBIT). The new legislation enhances this:

  • Depreciation and amortization can now be added back to adjusted taxable income
  • This increases the amount of deductible interest, which is especially impactful for debt-heavy industries like manufacturing

Companies that previously struggled to reconcile debt payments with limited deductions may find significant relief, making borrowing for growth more viable.

Floor Plan Interest Fix for RV Dealerships

A niche yet important update addresses floor plan interest deductibility, specifically benefiting RV dealerships. This correction resolves a persistent issue these businesses faced under prior tax regimes, giving them improved clarity and financial predictability.

Section 174 and R&D Expense Overhaul

One of the most applauded revisions tackles the controversial Section 174 requirement, which had forced companies to capitalize and amortize R&D expenses over 5 years. Now:

  • Domestic R&D costs can be expensed immediately
  • This not only allows the deduction, but makes the R&D tax credit more accessible

Foreign R&D, however, is still subject to the stricter 15-year amortization rule. This move is particularly helpful for manufacturers innovating new products or refining processes.

International Tax Complexity Remains

Despite these positive changes, some international reporting challenges remain:

  • Provisions like GILTI (now called Net CFC Tested Income) are still in place
  • Reporting through frameworks like FITI continues to complicate offshore manufacturing arrangements

Though the terminology has been softened, the operational complexity persists, prompting tax professionals to advise caution and consultation in this domain.

A Permanent Shift with Growth in Sight

Many of the tax reforms initiated in 2018 were set to sunset in 2025. The OBBBA makes most of these provisions permanent, delivering certainty to long-term planning and investment strategies. Analysts expect:

  • Renewed capital infusion in manufacturing
  • Continued bonus depreciation benefits
  • A repeat of the growth pattern observed after the 2018 code update

Final Thoughts

The OBBBA offers clarity, relief, and opportunity to US businesses navigating an increasingly complex landscape. By locking in tax provisions and addressing pain points—from equipment depreciation to R&D deduction—companies can confidently invest in innovation and expansion. While global operations still face hurdles, the domestic outlook appears decidedly optimistic.

Our Speaker:

Matthew Foster, Partner, Frazier & Deeter Advisory, LLC

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