2026 promises to be a pivotal year for manufacturers looking to optimize their tax position. With significant legislative changes and expanded incentives, the right planning can translate into substantial savings. Below are the top opportunities manufacturers should prioritize this year.
1. Qualified Production Property
The One Big Beautiful Bill created a new incentive for manufacturing companies that allows 100% expensing of building assets that are dedicated to manufacturing. Starting in 2025, companies can fully expense their building assets, which they previously were not able to do. This incentive increases the ROI of the investment of the building and can significantly reduce taxable income for the 2025 tax year.
2. Full First-Year Expensing (100% Bonus Depreciation)
Under the One Big Beautiful Bill Act (OBBBA), 100% bonus depreciation is back in full force. This means that eligible manufacturing equipment, machinery, and certain improvements placed into service, starting on January 20, 2025, can be expensed immediately rather than depreciated over time, significantly reducing taxable income in the current year.
3. Increased Section 179 Limits
Section 179 expensing continues to offer manufacturers an accelerated deduction for qualified property. The annual limitation for 2025 is indexed upward to $2.5 million with a phase out starting at $4 million for qualifying property, allowing businesses to expense more of their investments in equipment, leasehold improvements, and software outright rather than depreciating over subsequent years.
Planning Tip: Combine Section 179 and bonus depreciation to maximize upfront deductions where eligible.
4. State-Level Manufacturing Incentives
Many states are enhancing their credit programs to attract manufacturing investment. For example, Indiana’s EDGE payroll tax credit, which is a refundable credit that is calculated as a percentage of increased tax withholdings generated from new jobs creation.
Action Step: Conduct a state-by-state credit assessment as part of site selection and expansion planning.
5. Research & Development (R&D) Credit Optimization
Manufacturers engaged in product, process, or software innovation can leverage the R&D Credit to offset current and alternative minimum tax liabilities. Coupled with bonus depreciation and other expensing rules, the R&D Credit remains a powerful tool to reduce tax liability while fueling innovation.
6. Cost Segregation for Building & Facility Investments
Cost segregation studies continue to deliver strong cash flow benefits by accelerating depreciation deductions on building components used in manufacturing. When paired with bonus depreciation and Section 179 planning, manufacturers can significantly increase upfront deductions on facility upgrades and expansions.
Final Thoughts: 2026 Is All About Timing & Strategy
Success in 2026 requires a proactive approach to 2025 tax planning. Coordinate investment timing, leverage enhanced credits, maximize first-year expensing with OBBBA provisions, and integrate state incentives into capital planning. Strategic tax planning can materially improve cash flow, support expansion, and drive competitive advantage.