The new tax package — casually referred to as the “One Big Beautiful Bill” — includes powerful new and reinstated tax incentives aimed at bolstering domestic manufacturing and distribution. This legislation reverses several unfavorable changes in recent years and introduces new opportunities to reduce tax liability and improve capital investment strategies.
Let’s walk through the tax provisions that will impact manufacturers and distributors.
Key Tax Provisions Restored: Back to Pro-Growth Incentives
100% Bonus Depreciation Reinstated
What Changed
- For qualified property placed in service on or after January 19, 2025, businesses can once again deduct 100% of the cost in the year the asset is placed into service
- This permanent provision rolls back the phase-down schedule previously in place:
- 2023: 80% bonus
- 2024: 60% bonus
How It Helps Manufacturers & Distributors
This change immediately boosts cash flow by allowing full write-offs of equipment purchases — including machinery, vehicles and warehouse automation tools — rather than spreading deductions over several years. It’s particularly valuable for operations undergoing facility expansions or modernizing production lines.
Expanded Section 179 Deduction
What Changed
- For tax years beginning after December 31, 2024, the Section 179 deduction limit increases to $2.5 million, and the phase-out threshold increases to $4 million
- This is a significant increase from 2024’s limits of $1.22 million and $3.05 million, respectively
Eligible Assets
- Manufacturing and distribution equipment
- Off-the-shelf software
- Improvements to nonresidential buildings (e.g., HVAC, security, lighting)
Why It Matters
Smaller and mid-sized manufacturers can now fully expense larger purchases without triggering the phase-out. This makes investing in production technology, robotics and logistics infrastructure much more tax-efficient.
Business Interest Limitation Based on EBITDA
What Changed
- The 30% cap on deductible business interest (IRC §163(j)) now uses EBITDA instead of EBIT when calculating Adjusted Taxable Income (ATI)
- Businesses can add back depreciation, amortization and depletion when computing their ATI
How It Benefits Industry
This reversal favors capital-intensive businesses. Manufacturers and distributors with substantial depreciation expenses (e.g., from machinery or fleet purchases) will once again enjoy increased interest deductibility — lowering effective borrowing costs and incentivizing reinvestment.
Full Deduction of Domestic R&D Expenses
What Changed
- Beginning in 2025, qualified domestic research and development (R&D) costs are fully deductible in the year incurred, eliminating the five-year amortization requirement
- Businesses with average gross receipts under $31 million can elect retroactive relief back to 2022 through:
- Amended returns
- A 2025 catch-up deduction (or split between 2025 and 2026)
Industry Impact
From prototyping new products to automating processes or upgrading packaging systems, manufacturers and distributors that innovate in the U.S. can now immediately expense those costs, thereby lowering taxable income and boosting the ROI of R&D efforts.
New Incentive: 100% Deduction for Qualified Production Property (QPP)
What It Is
A new deduction for capital investments in real property primarily used for manufacturing, production or refining of tangible personal property.
Key Criteria
- Construction must begin after January 19, 2025
- Property must be placed in service before January 1, 2031
- Applies to new builds and improvements (e.g., factory renovations, warehouse expansions)
Direct Benefits for Manufacturers & Distributors
This creates a significant tax advantage for companies expanding U.S.-based operations. Whether you're constructing a new manufacturing facility or upgrading an existing distribution hub, the entire cost of the building (not just equipment) may be deductible, offering a powerful incentive to build and expand domestically.
Final Thoughts: What Should You Do Now?
The One Big Beautiful Bill signals a decisive shift back toward policies that encourage domestic manufacturing, innovation and capital reinvestment. For business owners in this space, these provisions aren’t just updates — they’re opportunities.
Action Items for 2025 and Beyond
- Plan capital purchases for 2025 or later to fully benefit from 100% bonus depreciation and QPP
- Evaluate R&D expenses from 2022–2024 for potential retroactive deductions
- Review financing strategy in light of improved interest deductibility
- Consult early with your tax advisor to model scenarios and maximize available benefits
Need Help?
If you’re a U.S.-based manufacturer or distributor, these changes could significantly reduce your tax bill and free up capital for future growth. Let's talk through what this could mean for your business in 2025 and beyond. Contact us online or call 800.899.4623 to discuss your situation.
