How A Small Budget Item Could Lead To A Big Manufacturing Push

With his first budget proposal of his second term, President Donald Trump and congressional Republicans hope the expansion of a tax break known as a bonus or special depreciation allowance will spur U.S. manufacturing investment. 

The 2026 federal budget that cleared the House of Representatives over the weekend includes the extension of a well-used corporate tax break and an expansion of the program to, for the first time, directly cover commercial real estate.

The tweak to the tax code allows businesses to fully deduct the price of some large purchases in a single tax year rather than over the four-year — or four-decade, in the case of real estate — rule that typically applies. 

“The idea behind 100% expensing would be to free up some of that cash to reinvest in America,” according to Amar Patel, principal at tax consultant KBKG. “From that perspective, it makes a lot of sense.” 

The extension of 100% bonus depreciation alone would cost $51.5B in revenue in 2025 and $243B through 2029, when it is set to sunset, according to estimates from the nonprofit Tax Foundation, which supports the deduction as an accelerant of economic growth.

Bonus depreciation allowances have acted as a dial that Republicans and Democrats can turn to different settings depending on the administration and the economy. 

During his first term, Trump’s signature Tax Cuts and Jobs Act of 2017 shifted the rules so that companies could push all of the tax savings into one year. That deduction began to phase out in 2023, and without any changes, businesses would only be able to deduct 40% of the total cost of qualifying items on their 2025 taxes. 

The budget that passed a key House committee would restore the 100% deduction for qualified purchases through 2029. 

“I'm thrilled to see that equipment purchases are going to be treated in this manner,” said Greg Matter, the head of advanced manufacturing at JLL. 

“The effectiveness of the policy, should it be passed, is that it encourages all production. That can be inputs and raw materials through to final assembly,” he said. “This encourages additional investment further upstream in the supply chain.”

The White House and House Republicans want to take the incentive further by labeling the physical real estate used for manufacturing as a qualifying item, taking a tax deduction that would typically be staggered for 39 years and pushing all the savings into one tax break.

The change could amount to savings in the tens of millions of dollars for large manufacturers that decide to build a new facility or substantially upgrade an aging or abandoned site. The proposal is something of an expansion of a similar incentive that was part of the 2022 CHIPS Act, Patel said. 

“Outside of the semiconductor chip manufacturing that was here before, this is significantly new. It opens it up for all kinds of domestic manufacturing,” he said. “It is definitely landmark, and it's an interesting way to incentivize domestic manufacturing.” 

Neither the extension nor the expansion of the bonus depreciation allowance is guaranteed to survive negotiations, which have largely involved fiscal hawks arguing with other Republicans over the depth of budget cuts.

The budget reforms would offer massive savings for corporations that already leverage the tax break on qualified property, which includes most equipment and machinery. 

A cottage industry of tax professionals exists to maximize the savings, especially after Trump’s first round of tax reform expanded the program to include acquired assets rather than just new construction. 

The statute makes a distinction between a building and the equipment inside. A buyer of an office building would deduct the value of the physical structure over a 39-year timeline. But everything from the carpet to the break room cabinets can be considered equipment and eligible for bonus depreciation, Patel said.

For new construction, as much as 30% of the value of a commercial building can qualify for bonus depreciation under current tax policy. For factories, the proposed changes to the tax code would allow the owner to deduct the real estate’s total value the year the factory comes online, instead of over the first 39 years of its operation. 

Established manufacturers with large budgets and access to extensive lines of credit are positioned to take advantage of the proposal, Matter said. It is less likely that a startup will have the budget or sophistication to build new production facilities on the accelerated timelines that are required. 

The proposed tax code would apply to any new construction or substantial rehabilitation that began between the start of 2025 and the end of 2029. The project must be completed by 2034 and remain in operation for at least a decade to take advantage of the tax break. 

If a factory were to close early, the IRS would be tasked with clawing back erroneously awarded deductions.

“This benefits the Nvidias and the Apples, Foxconn, the aerospace, defense and automotive companies expanding their presence,” Matter said. 

Only the portion of a property that is used for production would be eligible for the tax break, according to the House Ways and Means committee markup of the bill. That adds a wrinkle to implementation, but it is already something businesses account for to comply with today’s tax code. Sophisticated accountants can already leverage the law to help lower tax bills for clients.

If a company built a factory that had an on-site office for the human resources department, that office space could still conceivably qualify because of its degrees of separation from the manufacturing itself, Patel said.

“It's really the tax consultants really understanding what are the activities within the building, where they can draw a line in the sand that's easily understandable to the IRS, because they work with what's reasonable,” he said.