The One Big Beautiful Bill Act: Key Changes for Manufacturing and Distribution Companies

The tax landscape is changing in a big way for manufacturing and distributions companies, thanks to the One Big Beautiful Bill Act (OBBBA).

If your company is planning to build new facilities, invest in new equipment or increase research and development, the OBBBA brings new opportunities (and new rules).

Here, we’ve outlined a few of the most impactful provisions of the OBBBA for manufacturing and distribution companies and how you should respond to them.

Qualified Production Property

One of the most important provisions that manufacturers should be aware of in the OBBBA is the deduction for qualified production property (QPP).

This new incentive is designed to encourage manufacturers to invest in the creation of new facilities. If construction begins between January 19, 2025, and January 1, 2029, and the facility is used for “qualified production activities,” the manufacturing space in that facility can be written off 100% in the first year. The space must be placed in service by January 1, 2031.

It’s important to note that only the space devoted to manufacturing qualifies for this deduction; office space and areas related to sales activities are excluded.

This provision represents a substantial tax break for manufacturers who are looking to grow, modernize or invest in new production capabilities, so it’s a key opportunity to consider as part of any upcoming capital projects.

Interest Expense Limitation

The 2017 Tax Cuts and Jobs Act introduced limits on the amount of interest expense businesses could deduct. When interest rates were low, this limitation had little impact, but as rates have risen, more businesses have been affected. Manufacturers who often depend on financing for equipment, facility expansion and inventory have increasingly felt the pressure.

The OBBBA partially relieves this issue by allowing taxpayers to add back depreciation and amortization to the calculation. The interest expense limitation is now 30% of taxable earnings before interest, taxes, depreciation and amortization (EBITDA), rather than earnings before interest and taxes (EBIT).

This change is especially significant for manufacturers, who typically have high depreciation and amortization expenses due to heavy investment in machinery, equipment and production facilities. By allowing these amounts to be added back, manufacturers will generally be able to deduct a larger portion of their interest expense.

This change is effective for tax years starting in 2025, but fiscal year filers may need to wait an additional year to benefit. There are also new limitations for manufacturers who capitalize interest expense to inventory, but overall, the changes are expected to allow more interest expense to be deducted.

Bonus Depreciation

Bonus depreciation was set to phase out, but the OBBBA restores 100% bonus depreciation and makes it permanent starting in 2025. This provides certainty for future planning, since companies can now write off 100% of eligible purchases (such as new manufacturing equipment or production technology). However, property acquired under a contract before January 19, 2025, isn’t eligible for this expensing.

For manufacturers considering major upgrades, bonus depreciation offers a powerful incentive because the full cost can be deducted up front rather than depreciated over several years.

R&D Capitalization

Previously, companies were required to capitalize and amortize domestic and foreign R&D expenses, which was burdensome for those investing in innovation, improvements or new product development.

Under the OBBBA, domestic R&D expenses incurred from 2025 onward can be expensed immediately. Taxpayers with $31 million or less in gross receipts can even amend prior years’ returns to take these deductions. Foreign R&D expenses, however, must still be capitalized and amortized over 15 years.

Overtime Pay Exemption

The OBBBA introduces a new benefit for wage earners who work overtime (a common scenario in manufacturing, where production schedules commonly require extended hours). The premium portion of overtime pay (the “half” in time-and-a-half) is now exempt from federal income tax for tax years 2025 through 2028.

This above-the-line deduction is $12,500 for single filers and $25,000 for joint filers, with phase-outs at $150,000 and $300,000 of income, respectively. Further IRS guidance is expected on how this will affect withholding. The overtime premium information will be reported on employees’ W-2 forms.

Section 179 and Additional Depreciation

Section 179 allows taxpayers to write off 100% of eligible purchases, similar to bonus depreciation, but with some differences.

Unlike bonus depreciation, Section 179 deductions are limited to the amount of taxable income generated by the manufacturing business. This is especially important for manufacturers who want to avoid creating or increasing a taxable loss, which can be important for companies with changing profits or those looking to maximize current-year deductions without carrying losses forward.

Some states conform more closely to Section 179 than to bonus depreciation, so the best approach may depend on your location. Bonus depreciation is “all or nothing” for each class of property, while Section 179 allows more flexibility.

For manufacturers investing in new or used equipment, production lines or technology upgrades, understanding the differences between Section 179 and bonus depreciation is essential for optimizing tax savings and supporting ongoing growth.

Learn More About How the OBBBA Will Impact Your Manufacturing Company

With so many changes and different effective dates, manufacturers should consult with your tax advisors to understand when deductions and phase-outs start. The changes discussed here are just the highlights, but they represent a bright future for U.S. manufacturing since many of the provisions encourage investment, innovation and growth for the American worker.

Manufacturers should familiarize themselves with the various provisions and consult with their advisors to take full advantage of the benefits. As more guidance is released, staying informed will be key to maximizing opportunities under the One Big Beautiful Bill Act.

To learn more about how the OBBBA will impact your specific manufacturing company, contact your Warren Averett advisor directly, or ask a member of our team to reach out to you.