OBBBA boosts tax outlook for domestic solar production

Though much media coverage of the One Big Beautiful Bill Act (OBBBA) has focused on its curtailments to solar-deployment tax incentives, manufacturers should not overlook the OBBBA’s enhancements to incentives for domestic manufacturing, along with research and development (R&D).

The new policies apply equally to the domestic solar manufacturing industry, which has waged a long-term battle — and achieved a good amount of success — in restoring a critical mass.

Such are the key messages stemming from an overview of the changes by the advisory arm of major U.S. accounting firm CohnReznick, which specializes in strategy, risk and restructuring services. The overview was authored by two partners of CohnReznick Advisory LLC: Travis Butler, a member of the firm’s national tax, cost segregation, and accounting methods practice, and Jarrett Bluth, tax practice leader for New York state.

In an interview with pv magazine USA, Butler suggested that though the new tax policies’ boosts to domestic manufacturing are variable, they combine to offer a more favorable tax picture of the future for domestic investment. In terms of policies affecting each of “the big three” of corporate tax accounting — fixed assets, research and development (R&D) and interest — manufacturers come out ahead, he said.

“For the overall manufacturing position, it’s a win,” Butler said.

In particular, the changes will help manufacturers by speeding up the time when tax policies reward investments on U.S. soil, he said. Dollars spent this year may be deductible in taxes for this year.

Taken together, the changes are significant enough that they might play a role in siting decisions about new factories, Butler said. “It is going to be a consideration when a company is deciding whether to do domestic manufacturing,” he said.

For solar projects, when the policy gains combine with the bill’s new foreign entity of concern (FEOC) rules barring companies of adversary countries from tapping federal tax incentives, the OBBBA’s gain in domestic manufacturing’s tax context is considerable, said Sasibeh Beyene, a tax partner in CohnReznick’s renewable energy practice.

In analyzing OBBBA’s tax changes, the authors highlight six developments that directly affect manufacturing and R&D:

Restoration of 100% bonus depreciation: OBBBA restores full expensing for certain properties, providing immediate cash tax savings for capital spending. The 100% first-year depreciation deduction applies to qualified domestic property acquired and placed in service after Jan. 19, 2025.
Expanded Section 168 deduction for “qualified production property”: Newly built qualified production property allows for an elective, immediate 100% first-year depreciation deduction. Previously, structural components of a manufacturing facility were depreciated over 39 years. The new law covers property used as an integral part of a qualified production activity, including manufacturing, production, or refining of tangible personal property. For tax purposes, personal property includes machinery, tools, equipment, furniture, and vehicles. Corporate taxpayers may wish to consider cost segregation studies to identify eligible property.
R&D incentives under Section 174A: The act encourages manufacturers to locate R&D activities in the U.S. domestic market by allowing immediate deduction of domestic R&D costs incurred in taxable years beginning after Dec. 31, 2024. Foreign R&D costs must still be capitalized and amortized over 15 years. Taxpayers may want to reassess R&D tax strategies and siting decisions in light of this change.
Expanded deductibility of business interest under Section 163(j): OBBBA increases the amount of business interest expenses taxpayers can deduct by excluding depreciation, amortization, and depletion from the calculation of adjusted taxable income (ATI). A 30% EBITDA (earnings before interest, taxes, depreciation and amortization) cap on the deductibility of business interest expenses is reinstated for tax years beginning after Dec. 31, 2024, allowing more interest to be deductible in 2025 and later.
Expansion of Section 179 expensing: Immediate expensing is now available for capital-intensive upgrades, with higher limits for tangible personal property, certain software, qualified improvement property and certain improvements to capital purchases. This policy enables taxpayers to avoid long depreciation schedules for many assets. Companies may benefit from reviewing capital budgeting for fixed assets, such as machinery and tools, and consider bundling smaller upgrades to maximize expense thresholds.
Section 199A adjustments: The act makes the deduction of qualified business income (QBI) permanent at 20% and expands the deduction limit phase-in range, offering potential for increased QBI deductions. Taxpayers should consider reviewing long-term tax planning to optimize QBI benefits.

While many of these benefits are most notable in the short term, the overview advises manufacturers to evaluate their interactions over the long term.

“Given that these benefits interact with one another, manufacturers should perform multi-year modeling to understand the optimal elections to maximize cash flow and tax savings,” the authors write.

Bluth and Butler wrote a more comprehensive overview of the OBBBA’s tax implications for business closer to the time of its passage.

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