New 100% Deduction Offers Win for U.S. Manufacturers

If your business is building or upgrading manufacturing facilities in the U.S., you need to know about this new tax incentive.

As part of the One Big Beautiful Bill Act (OBBBA), businesses can now claim a 100% deduction on qualified production property and accelerate the tax benefits of investing in domestic production infrastructure.

What Was the Rule Before?

Previously, businesses investing in nonresidential real estate like factories had to recover the cost of those investments over the course of 39 years. This applied to both new builds and most improvements, making it a long road to realize any meaningful tax benefit.

What's Changing Under the OBBBA?

Now, under the new provision, certain investments qualify for immediate 100% expensing instead of a longer recovery period. Here’s how it works: The 100% deduction applies to the cost of new or improved qualified production property.

This includes new factories, significant improvements to existing factories, and other buildings tied directly to qualified production activities.

• Used as part of a qualified production activity
• Located in the U.S. or a U.S. territory
• Where the original use begins with the taxpayer
• Where the taxpayer elects the deduction

To qualify, the activity must result in a substantial transformation of tangible personal property, such as in manufacturing, refining, or agricultural production.

That means warehouse and storage facilities alone don’t qualify, nor do spaces used for administration, software development, lodging, or sales.

RELATED CONTENT: EGUIDE

OBBBA QUICK REFERENCE GUIDE

OPEN IN NEW WINDOW

What Does This Mean for Business Owners?

This is a significant opportunity for companies planning to expand or modernize their manufacturing footprint. Rather than waiting decades to deduct the full cost of a facility, you may now be able to write off the entire investment in the year it’s placed in service.

The timing matters:

• Construction must begin between 1/30/2025 and 12/31/2028
• Property must be placed in service before 1/1/2031

That’s a fairly tight window, especially if your project requires significant design, permitting, or funding.

RELATED CONTENT: EGUIDE

A GUIDE FOR MANUFACTURERS: TAX TIPS, GROWTH STRATEGIES, AND MORE

OPEN IN NEW WINDOW

Is There Anything You Should Be Doing Now?

Yes – planning ahead is important:

• Review your upcoming capital projects. If you’re considering building or improving a U.S. production facility, determine whether they might qualify.
• Talk to your tax advisor about making the special election required to claim the deduction.
• Be mindful of the recapture rules. If you change the use of the property within 10 years, some of the tax benefit may be clawed back.

If manufacturing is central to your business model, this new deduction could significantly reduce your tax liability and free up more cash for growth.