What Does the Big Beautiful Bill Mean for Industrial Companies?

The House of Representatives and the Senate have voted on different versions of the Trump administration’s “One Big Beautiful Bill” Act. Both bills contain provisions, discussed below, that would benefit industrial products companies and manufacturers.  

Research & Experimentation

Under the Tax Cuts and Jobs Act (TCJA), qualifying domestic research and experimentation (REE) expenditures have been required to be capitalized (starting in the 2022 tax year) and amortized over five years, as opposed to being deducted in full in the year of the expenditure. Foreign REE is required to be capitalized and amortized over 15 years. These rules have led many companies to report substantial amounts of phantom income, resulting in the payment of tax on non-existent profits.

For tax years beginning after Dec. 31, 2024 and before Jan 1, 2030, the House bill would allow a taxpayer, for domestic REE, to elect to: (a) deduct the domestic REE in the year paid or incurred; (b) capitalize and deduct the domestic REE ratably over the useful life of the research (but no less than 60 months), using a mid-year convention; or (c) capitalize and recover the REE over 10 years. The Senate version would make these elections permanent, and it also provides relief for businesses already complying with the law through an accelerated deduction of previously capitalized domestic REE since 2022.

Taxpayers should review their specific tax situations to determine which option may produce the best result. For example, immediate expensing may not generate the best tax result if it generates excess business losses under IRC section 461(l). Additionally, the Act clarifies that REE for alternative minimum tax purposes must be recovered over a 10-year period (for both domestic and foreign research).

Bonus Depreciation

The bonus depreciation rate has been decreasing from 100% since 2022. If tax rules remain unchanged, the deduction for the 2025 tax year would further decrease to 40% of the cost of the qualifying asset.

The House bill restores the deduction to 100% of the cost of a qualifying asset that is both acquired and placed in service after Jan. 19, 2025, and before Jan. 1, 2030 (Jan. 1, 2031, for certain properties with longer production periods). The Senate bill would make 100% depreciation permanent.

Qualified Production Property

The House and Senate proposals create a new deduction for 100% of the cost of qualified production real property where construction began after Jan. 19, 2025, and before Jan. 1, 2029, and which is placed in service before Jan. 1, 2031. This applies to the costs of new factories and to improvements to existing facilities that satisfy certain conditions. Currently, these costs would be subject to depreciation over 39 years. However, the cost of the portions of the property used for certain ancillary purposes (e.g., sales or administrative) does not qualify for this accelerated deduction.

Bigger Deductions for Manufacturers With Qualifying Property

Current law permits taxpayers, under IRC Section 179, to expense the cost of qualifying property up to $1 million (inflation-adjusted). This deduction is phased out on a dollar-for-dollar basis for the cost of qualifying property over $2.5 million (inflation-adjusted). For 2025, these amounts are $1.25 million and $3.13 million. The House and Senate bills would increase the levels for property placed in service in 2025 to $2.5 million, up from the current $1.25 million, with the phaseout beginning after $4 million in acquisitions. These thresholds are adjusted for inflation after 2025.

Qualified Business Income Deduction

Currently, an individual can potentially get a deduction of up to 20% of qualified business income. However, this deduction is subject to limitations based on the taxpayer’s income. For taxpayers with income exceeding certain thresholds, the deduction is limited based on the W-2 wages and capital investment of the business. An additional limitation applies to those engaged in certain Specified Trades or Businesses. This QBI deduction is scheduled to sunset after 2025, which would cause a significant tax increase for many non-corporate taxpayers with business income.

 The House bill would permanently extend the deduction and increase it from 20% to 23%. It also modifies the limitation for those with high incomes in a manner that could provide an additional deduction to those engaged in a Specified Trade or Business. The Senate bill, while making the QBI deduction permanent, does not increase it from 20%. It also makes some modifications to the current phase-out rules.

Special Accounting Treatment for Certain Manufacturers

Under current law, taxpayers with average annual gross receipts less than $25 million, inflation adjusted, for the prior three years are (i) allowed to use the cash method of accounting; (ii) are exempt from the business interest limitation rules under IRC section 163(j); (iii) are not required to account for inventories; and (iv) are exempt from the IRC section 263A capitalization rules. For 2025, the threshold is $31 million. The House bill would increase the threshold to $80 million for a small manufacturing taxpayer – i.e., a taxpayer that derives substantially all of its gross revenue, over the three prior years, from the sale, exchange, disposition, or lease of tangible personal property that is produced or manufactured by the business. This provision is not included in the Senate bill.

Individual Tax Rates

Both the House and Senate versions of the bill provide for the permanent extension of individual tax rates. Rates above the 10% rate are not increased after 2025, as scheduled under the TCJA, and the maximum individual income tax rate remains at 37% and does not rise to 39.6%, which would be the case if the law is unchanged.

Looking Ahead for Industrial Companies

The One Big, Beautiful Bill Act isn’t law yet — but it could move quickly. If passed, these modifications can be game changers for industrial products companies that are investing in their businesses, innovating products and manufacturing applications, and looking to manage cash flow.

By understanding what’s in the bill now, you will be better positioned to act fast, restructure smartly, and maximize your tax strategy as early as 2025. We will continue to monitor these developments and share insights.

For more information about the industrial sector provisions in the budget proposal, please contact our Consumer & Industrial Products professionals.