New Tax Law Aids Industry

Public Law No. 11921, formally known as the One Big Beautiful Bill, reshapes the tax landscape for machining, metalworking and manufacturing companies. With sweeping changes aimed at boosting innovation and capital investment, the new law offers both immediate relief and long-term incentives for industrial firms. Key provisions include the restoration of immediate research and development (R&D) expensing, enhanced depreciation rules, relaxed interest deduction limits and expanded small business tax benefits, each designed to strengthen the financial foundation of U.S. manufacturers.

Immediate expensing of R&D (Section 174)

Since 2022, businesses have been required to capitalize and amortize R&D expenses over five years (15 years for foreign R&D), creating cash flow challenges and compliance burdens. The new tax law reverses this by restoring full and immediate expensing of domestic R&D under Section 174.

For manufacturers, this is a game-changer. It eliminates the tax penalty many companies faced for investing in process improvements, innovative tooling and new product development.

Additionally, companies subject to the R&D capitalization rules from 2022 to 2024 are now allowed to deduct any remaining unamortized R&D expenses in 2025 or spread them across 2025 and 2026. This provision frees up cash by reducing taxable income in those years.

Eligible small businesses may also amend their tax returns for the years 2022 through 2024 to reverse the capitalization requirement and potentially receive refunds for taxes already paid.

Depreciation increases

The phaseout of 100% bonus depreciation began in 2023 when it dropped to 80%. It dropped to 60% the following year, and further reductions were scheduled. The rollback made it more expensive for manufacturers to invest in capital equipment.

The new tax law not only reinstates the 100% bonus depreciation, it makes the full bonus depreciation permanent. Plus, the new tax law increases the maximum deduction (outlined in Section 179) and introduces new accelerated depreciation for qualified production property.

These changes allow businesses to immediately expense the full cost of capital investments such as CNC machines, tooling systems, robotics and automation equipment. The result is a faster return on investment (ROI), a critical factor in justifying large-scale modernization projects.

For manufacturers, especially those competing globally, this provision supports facility upgrades, enhances productivity and strengthens the case for adopting advanced technologies. It also levels the playing field for smaller firms that may lack access to large capital reserves.

Eased interest limitations under IRC §163(j)

Since 2022, interest deductions have been limited to 30% of adjusted taxable income, calculated based on earnings before interest and taxes (EBIT). This has disproportionately affected capital-intensive industries like manufacturing, where borrowing is often essential for equipment purchases or facility expansions.

The new tax law bases the calculation on earnings before interest, taxes, depreciation and amortization (EBITDA), effectively increasing the amount of deductible interest.

This change eases the financial burden on manufacturers that rely on loans to grow. It supports more aggressive growth strategies, improves refinancing options and reduces the cost of capital for firms looking to scale.

Other provisions

Qualified small business stock (QSBS) — QSBS currently allows for up to 100% capital gain exclusion on stock held for more than five years, subject to certain limits. The new tax law expands eligibility and may increase exclusion thresholds, making investments in qualifying manufacturing firms more attractive.

For owners of eligible C corporations, this could mean realizing tax-free gains upon exit, an appealing prospect for entrepreneurs and investors alike. It also encourages long-term capital formation, which is essential for scaling innovative manufacturing businesses.

Qualified opportunity zone (QOZ) incentives — The QOZ program offers tax deferral and exclusion for gains reinvested in designated economically distressed areas. However, previous rules were complex and compliance-heavy, which limited participation.

The new tax law streamlines compliance, expands eligible zones and broadens the scope of qualifying business activities. This makes it easier for manufacturers to invest in or relocate to underserved areas while accessing tax-advantaged capital.

For manufacturers, this could mean new opportunities to expand operations, tap into local talent pools and contribute to regional economic development, all while benefiting from favorable tax treatment.

Qualified business income (QBI) deduction — The 20% QBI deduction for pass-through entities (such as S corporations and partnerships), which had been scheduled to end after 2025, is now permanent. The new tax law also clarifies that this deduction applies to manufacturers.

This helps ensure long-term tax savings for owners of pass-through manufacturing entities and supports reinvestment in equipment, workforce development and facility upgrades. It also adds certainty to tax planning and business structure decisions, allowing firms to make strategic choices with confidence.

Conclusion

Public Law No. 11921 delivers a powerful package of tax reforms that support industrial innovation and investment. By restoring immediate R&D expensing, enhancing depreciation rules, easing interest deduction limits and expanding small business tax benefits, the new tax law empowers manufacturers to innovate, modernize and grow.

It also encourages investment in underserved communities and supports long-term planning through permanent tax provisions. Now is the time for business owners and financial leaders to engage with tax professionals and prepare to take full advantage of these changes.

With the right planning, the changes in this tax law could be a catalyst for a new era of industrial growth and innovation.