Don’t Miss Tax Benefits for Manufacturers: R&D Expensing, Section 179, and Bonus Depreciation Explained

Manufacturers are heading into one of the most advantageous tax years in recent memory. While states are still accessing their individual approaches, recent federal tax law changes around R&D expensing, Section 179, and the return of 100% bonus depreciation, are opening the door for meaningful cash flow improvements across the industry. These changes aren’t small tweaks. They are reshaping how manufacturers plan, invest, grow, and compete.

For businesses that run lean and reinvest constantly, this creates real opportunity. That said, it also introduces complexity, misconceptions, and decisions that depend heavily on timing and strategy. At Redpath, our goal is to simplify the complex and help manufacturers take full advantage of what’s available, doing so proactively, correctly, and at the right time. Here’s what you need to know…

R&D Expensing Is Back, And It’s a Game Changer

For years, manufacturers could immediately expense their research and experimental (R&E) costs. Starting in 2022, federal rules changed, forcing companies to capitalize those costs and amortize them over five or fifteen years. The result? Higher taxable income and reduced ability to reinvest.

Those restrictions are now reversed for U.S.-based R&D. Manufacturers can once again expense domestic R&E costs immediately. This is one of the biggest benefits in the One Big Beautiful Bill Act (OBBBA) because many manufacturers carry significant R&D costs including engineering, prototyping, testing, product development, process improvements, and more.

Here’s an example of how this new benefit impacted one of our clients: A manufacturer had accumulated $85M in capitalized R&D across 2022–2024. Under the new law, they can now expense that balance and wipe out their next several years of taxable income, retaining tens of millions of dollars in cash that would otherwise go to the IRS.

Key Takeaway: If you do any meaningful R&D, you may have a substantial deduction sitting on your balance sheet waiting to be unlocked.

100% Bonus Depreciation Is Back for Equipment, and, for the First Time Ever, Manufacturing Buildings

Manufacturers are capital-intensive and their ability to write off equipment quickly matters. Under the previous phase-out schedule, federal bonus depreciation was dropping to 40% in 2025 and eventually disappearing. The new law fully restores 100% bonus depreciation for assets with a useful life of 15 years or less.

Here’s the most surprising (and most misunderstood) change this creates: You may now be able to bonus-depreciate manufacturing and production buildings. This has never been allowed in U.S. tax history. If a building is primarily used for manufacturing or production (say, 80% manufacturing / 20% office), the manufacturing portion can qualify for 100% bonus depreciation in year one. The office portion remains on a 39-year schedule.

The confusion comes in as a result of the strict qualifications and technical criteria that determine whether a building qualifies. Many manufacturers, especially smaller ones, haven’t heard about this change yet and may miss a significant opportunity if they don’t ask the right questions.

Key Takeaway: If you built, improved, or purchased a manufacturing building, you should revisit the cost allocation immediately.

Section 179 Limits Are Higher, Offering More Flexibility

The Section 179 deduction limit has increased from roughly $1.2M toward $2.5M, and the phase-out threshold is now $4M (up from $3M).  For manufacturers with regular equipment purchases including automation, robotics, tooling, vehicles, computers, and infrastructure, this provides even more flexibility in how and when to expense those investments.

What This Means for Manufacturers: The Cash Flow Advantage

Restored R&D expensing, expanded Section 179, and the return of 100% bonus depreciation all point to one outcome: Manufacturers can retain more cash right now.

That means:

• Accelerating capital purchases you’ve been considering
• Reinvesting in automation, robotics, and process improvements
• Hiring talent or expanding your team
• Reducing debt or pursuing growth initiatives
• Strengthening your balance sheet
• Returning capital to owners

Key Takeaway: This is exactly why the federal government designed the bill: to spur domestic manufacturing, encourage U.S.-based R&D, and accelerate economic growth. Now is the perfect time to be exploring the opportunities listed above.

Where Manufacturers Are Getting Stuck (and How to Avoid It)

Here are some common misconceptions that manufacturers are already facing:

Misconception #1: “If I expense R&D, will this hurt my R&D tax credit?” No. The R&D credit (Section 41) and the R&D deduction (Section 174) are completely separate, even though many assume they’re connected.

Misconception #2: “Every building qualifies for 100% bonus depreciation now.” Not true. Only qualifying manufacturing and production buildings, and only certain parts of them, are eligible. This area is complex, and missteps could trigger IRS scrutiny.

Misconception #3: “We should always take everything immediately.” Not always. If your business is losing money, taking 100% bonus depreciation may not be the best move. You may simply create net operating losses (NOLs), which are limited in how they can be used in future years.

Misconception #4: “We should amend every prior return to claim R&D deductions.” For businesses under $31M in gross receipts, amending may make sense… but not always. It depends on past losses, expected future income, and the timing of benefits. This isn’t a cookie-cutter decision.

The Deadline Is Real: Why This Matters Heading Into Year-End

December is when manufacturers should be running these analyses. Why? Because timing matters:

• Buying equipment before or after December 31 may change the result
• Splitting R&D deductions between 2025 and 2026 may be more strategic than deducting them all in one year
• A pending building purchase may qualify for immediate write-off
• A planned acquisition may deliver a large first-year deduction
• High-income years are the biggest opportunities to lower tax liability

For some manufacturers, the decisions made in the next few weeks will drive cash flow for the next 24–36 months.

Five Questions Every Manufacturer Should Ask Right Now

1. Do we have R&D expenses from 2022–2024 that we can now expense immediately?
2. Should we accelerate or delay any planned equipment purchases based on our 2024–2025 income levels?
3. Does any part of our building (or a building we’re buying) qualify for 100% bonus depreciation?
4. Should we amend any prior-year returns based on R&D expensing changes?
5. Are we maximizing both the R&D credit and the R&D deduction without mixing the two up?

If the answer to any of these is “I’m not sure,” it’s time for a conversation.

How Redpath Helps Manufacturers Navigate These Changes

While states choose their specific paths, these federal tax changes can create meaningful benefits for manufacturers, but only if they’re understood and applied the right way. The decisions you make before year-end can influence your cash flow for the next several years. 

Our Redpath manufacturing tax team is here to help you navigate the complexity, avoid missteps, and maximize your savings. We understand how thin margins, capital planning, and tax strategy connect… and how to use these new laws to your advantage. 

Connect with us today to open up a conversation.