The One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, gives manufacturers and distributors several valuable tax opportunities, including permanent 100% bonus depreciation, immediate expensing for domestic research costs, a more favorable business interest limitation, and a new deduction for certain production facilities. For many M&D companies, the opportunity is meaningful. The challenge is turning those benefits into timely elections, accurate system updates, and documentation that will hold up later.
Why Implementation Is an Administrative Problem, Not Just a Planning One
OBBBA is not a single effective-date exercise. Some provisions apply retroactively, some turn on specific 2025 acquisition or placed-in-service dates, and others phase out over time. The value a company captures will depend on choices made now, including whether to elect out of a deduction, amend a prior return, or adopt a new accounting method. Just as important, the support for those choices should be built as the work is done, not reconstructed during an exam.
Capital Investment: Bonus Depreciation, Qualified Production Property & Section 179
OBBBA permanently restores 100% bonus depreciation under Section 168(k) for qualified property, generally property with a recovery period of 20 years or less, acquired and placed in service after January 19, 2025. For M&D companies, this often includes machinery, equipment, vehicles, and similar assets.
The practical issue is systems and timing. Fixed-asset and ERP systems need to apply the correct rules based on acquisition date, placed-in-service date, and the written-binding-contract rule. Companies should also model whether electing out of bonus depreciation for a class of assets makes sense, particularly where net operating losses or other taxable-income-based provisions are in play.
OBBBA also creates a new elective 100% allowance under Section 168(n) for qualified production property. In general, this applies to the portion of nonresidential real property used as an integral part of a qualified production activity, such as manufacturing, chemical production, agricultural production, or refining that substantially transforms property into a qualified product. Construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service after July 4, 2025, and before January 1, 2031.
This benefit will require careful documentation. Office, administrative, sales, parking, research, and software engineering areas do not qualify, so companies may need a cost segregation study and a defensible production versus non-production allocation. Because recapture can apply if the property is disposed of or ceases to qualify within 10 years, ownership and use should be tracked beyond the placed-in-service year.
Section 179 expensing also increases to a $2.5 million maximum deduction, phased out once Section 179 property placed in service during the year exceeds $4 million. Because Section 179, bonus depreciation, and the new production property allowance do not operate the same way, companies should coordinate them rather than treating full expensing as automatic.
Domestic R&D: Section 174A & the Accounting-Method Machinery
OBBBA added Section 174A, restoring an immediate deduction for domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Taxpayers may instead elect to capitalize and amortize those costs over at least 60 months. Foreign research expenditures must still be capitalized and amortized over 15 years.
Revenue Procedure 2025-28 provides the mechanics for adopting the new treatment, making elections, applying transition rules, and changing accounting methods where required. The 60-month amortization election must be made by the due date, including extensions, of the return for the first year it applies, using the applicable statement procedures.
Companies that capitalized R&D costs under the prior rules for 2022, 2023, or 2024 may have retroactive options. Eligible small business taxpayers, generally taxpayers that meet the Section 448(c) gross receipts test and are not tax shelters, can elect to apply the new rules to those earlier years. For 2025, the gross receipts threshold is generally $31 million or less. These elections are date-sensitive, including a general July 6, 2026, deadline for amended returns or administrative adjustment requests, subject to any earlier statute-of-limitations deadline. The key work is identifying unamortized balances, choosing the recovery approach, and preparing the required Form 3115 or applicable statements.
Section 163(J): Remodeling the Financing Calculation
For tax years beginning after December 31, 2024, OBBBA restores the more favorable EBITDA-based business interest limitation by allowing depreciation, amortization, and depletion to be added back when computing adjusted taxable income. For debt-financed, capital-intensive M&D companies, that can materially increase deductible interest and improve the tax efficiency of financing.
Additional changes take effect for tax years beginning after December 31, 2025, including rules that generally pull capitalized interest into the Section 163(j) computation, with certain exceptions, and exclude certain controlled foreign corporation inclusions from adjusted taxable income. Companies should refresh their interest limitation models and revisit lender covenant and cash-tax projections under the new rules.
Energy & Advanced Manufacturing Credits: Supply-Chain Substantiation & Foreign-Entity Rules
Manufacturers in the energy supply chain should pay close attention to component-specific timelines. Section 45X generally remains available for many eligible components under the existing phaseout structure, while wind energy components are unavailable for sales after December 31, 2027. OBBBA also adds metallurgical coal as an applicable critical mineral at a reduced credit rate, subject to its own sunset. Companies relying on these credits should map each component and mineral separately.
OBBBA also adds prohibited foreign entity (PFE) restrictions. A 45X credit is not allowed if the taxpayer is a specified foreign entity or foreign-influenced entity, and eligible components may be disqualified if they receive material assistance from a prohibited foreign entity. Interim guidance provides safe harbors and calculation rules, with more guidance expected.
The takeaway is that energy credit diligence now reaches beyond tax. Procurement, operations, and tax teams should align on supplier documentation, safe-harbor calculations, retention, and credit-form support before credits are claimed. A clean process on the front end will be much easier than trying to rebuild the file later.
Information Reporting, Payroll & Business-Process Changes
OBBBA also affects several routine business processes. Sections 6041 and 6041A information reporting thresholds, along with the related backup withholding threshold, generally increase from $600 to $2,000 for payments made after December 31, 2025, with indexing after 2026. Section 6050W follows a separate third-party settlement organization framework and should be reviewed separately. Payroll teams should also prepare for reporting tied to the new qualified tip and overtime deductions, even with penalty relief available for 2025. These changes may not be complex individually, but they still require system updates, process ownership, and clear employee or vendor communication.
Next Steps
OBBBA creates real tax opportunities for manufacturers and distributors, but the benefit will depend on execution. Companies that map effective dates, make elections on time, update systems, and build support as they go will be in the best position to capture the available benefits. The Bonadio Group’s M&D team can help assess which provisions apply, model the available options, and build a practical implementation plan. If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
