OBBBA’s Bonus Depreciation Rules: What Capital-Intensive Industries Need to Know

When the One Big Beautiful Bill Act (OBBBA) became law on July 4, 2025, headlines focused on its promises of middle-class relief. But beneath the political noise, this sweeping legislation delivered something that tax professionals and business owners in capital-heavy industries have long hoped for: a reset on bonus depreciation.

Specifically, OBBBA restores 100% bonus depreciation under IRC §168(k) and introduces a new expensing rule for Qualified Production Property under §168(n). For sectors like manufacturing, construction, real estate, and healthcare, this helps transform how strategic investments are made and financed.

Here’s what these changes mean and how your business can respond strategically.

What Changed: A Look at Bonus Depreciation Before and After OBBBA

Before OBBBA, bonus depreciation was on a sharp decline. Thanks to the phase-out provisions in the Tax Cuts and Jobs Act (TCJA), the once-powerful 100% expensing benefit had already dropped to 40% by early 2025. Companies were bracing for a return to slow, multi-year depreciation schedules.

OBBBA upended those expectations by restoring and locking in permanent 100% bonus depreciation for qualifying property placed in service after Jan. 19, 2025. Here’s what that looks like:

• §168(k)(1)(A) now mandates full 100% expensing
• Phase-out rules eliminated: this is no longer a temporary provision
• Transitional election available to depreciate at 40% or 60% in 2025 for strategic NOL planning
• Effective for property acquired and placed in service after Jan. 19, 2025, subject to binding contract rules

For an industry already facing high interest rates and tight margins, this change unlocks substantial immediate tax savings.

New Rule: Section 168(n) and Qualified Production Property

What makes OBBBA truly innovative is the addition of §168(n), a brand-new provision that expands bonus depreciation to certain components of nonresidential real property used in production activities.

In short, Qualified Production Property (QPP) includes structures and systems used in manufacturing, processing or similar production-related functions. Think HVAC systems, specialized buildouts or improvements integral to operations.

This shift is designed to support reshoring of U.S.-based production, aligning with other federal initiatives to boost domestic manufacturing. It’s a game-changer for real estate developers, facility owners and healthcare operators with labs or compounding facilities.

Industry Impacts: What This Means for You

The benefits of these new provisions can vary greatly depending upon your industry.

Manufacturing

Manufacturers get a double win:

• Full expensing of machinery and robotics under §168(k)
• Expensing of plant infrastructure (walls, HVAC) under §168(n)

This means faster ROI on capital projects and greater flexibility in cash flow planning — critical in a sector driven by innovation and equipment turnover.

For example, a $50 million robotics system placed in service in 2026 could yield a first-year tax deduction worth up to $10.5 million (based on a 21% corporate tax rate).

Construction

Contractors and construction firms benefit from:

• Expensing of heavy equipment like cranes and bulldozers
• Immediate write-offs on real property used for prefabrication or production

Companies can pass on lower tax costs in the form of more competitive bids, which is especially helpful in today’s high-material-cost environment.

Real Estate

While real estate has historically been excluded from bonus depreciation, the OBBBA changes the rules for production-related properties:

• QPP provisions under §168(n) now allow expensing of building components if tied to production
• Encourages industrial/logistics investments, especially cold storage or automated warehouses

This expands the value of cost segregation studies, making them more important than ever for accelerating deductions.

A $20M cold storage warehouse, for instance, could qualify substantial structural costs under §168(n), instead of the usual 39-year recovery period.

Healthcare

Hospitals and healthcare organizations stand to benefit as well:

• Full expensing of medical equipment like MRI machines and surgical robots
• QPP eligibility for labs, pharmacies and clinical research units

This is critical in a high-capex environment, where upfront investment often stretches operating budgets.

Bonus Depreciation vs. Section 179: What’s Better?

While OBBBA also raised Section 179 limits (to $2.5 million with a $4 million phase-out), bonus depreciation still offers broader, unrestricted benefits:

For businesses with heavy capital investments, §168 is the more powerful tool.

Tax Planning Considerations for 2025 and Beyond

Regardless of your industry, now’s the time to rethink your capital planning strategies:

• Elect reduced percentages in 2025 if you’re NOL-sensitive
• Conduct updated cost segregation studies, especially for industrial or mixed-use properties
• Model NOL impacts on cash flow and future carrybacks
• Reevaluate lease-vs-buy decisions under the lens of full expensing

Example Scenarios: The Numbers Speak for Themselves

• Manufacturing: $50 million robotics line fully expensed in 2026 = $10.5 million tax shield
• Construction: $5 million crane expensed in 2025 = tax deduction matches revenue
• Real Estate: $20 million QPP-qualified cold storage project = accelerated cost recovery
• Healthcare: $10 million MRI purchase = full write-off year one

Full Expensing Is Here to Stay — Now It’s Time to Plan

The One Big Beautiful Bill Act makes 100% bonus depreciation a permanent part of the tax code and expands it to parts of real property through Qualified Production Property. If your business involves major capital expenditures, this is your opportunity to reset your strategy, unlock tax savings, and improve cash flow.

Need help applying this to your business? Contact a James Moore advisor for a consultation.

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