'One Big Beautiful Bill' revives investment incentives for equipment-reliant businesses

Tariff negotiations and the expiration of key tax benefits have created widespread uncertainty for equipment-reliant businesses throughout 2025, leaving many hesitant to invest. The clarity and stability provided by the bill’s tax provisions are being welcomed as a breath of fresh air — offering support for capex planning, encouraging forward momentum, and helping offset tariff-related concerns.

The overarching goal of the bill’s tax incentives is to stimulate investment in American businesses and reduce reliance on overseas manufacturing. By reshoring critical supply chain components and production capabilities, the bill aims to strengthen the U.S. economy and reduce vulnerability to global disruptions. Here’s a closer look at the bill’s tax provisions and how businesses can strategically maximize its benefits:

Tax cuts to support business growth

1. Reinstatement of 100% bonus depreciation and expansion of Section 179

The bill reinstates 100% bonus depreciation for equipment purchases and expands Section 179 deductions. This allows businesses to fully write off equipment investments in the year of purchase, delivering a substantial immediate tax benefit. The result: more cash retained for reinvestment, hiring, and growth.

While the 2017 Tax Cuts and Jobs Act also included 100% bonus depreciation, the rate had been gradually phased down. By 2025, only 40% of the investment qualified for immediate deduction compared to traditional Modified Accelerated Cost Recovery System (MACRS). The new legislation makes the 100% rate permanent (unless repealed), giving businesses confidence in how large purchases will impact tax liabilities.

The benefit applies broadly — covering transportation, manufacturing, construction, technology equipment, and even office furniture and fixtures. Large businesses must use a consistent depreciation method (bonus or MACRS) across all equipment, while small businesses enjoy greater flexibility under Section 179. The Section 179 threshold has been increased from $1.25 million to $2.25 million, with phase-out beginning at $6.5 million in eligible purchases.

2. Interest expense deduction reverts to EBITDA-based calculation

The bill reverts the business interest expense limitation under Section 163 to an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)-based formula, replacing the more restrictive Earnings Before Interest and Taxes (EBIT)-based method used since 2022. This change allows businesses to deduct a larger portion of interest on financed equipment, improving after-tax cash flow and making borrowing more attractive. By increasing the deductible interest amount, the bill effectively lowers the cost of financing and ownership.

3. Enhanced treatment of R&D expenses under Section 174

The legislation significantly improves tax treatment for research and development expenses. Businesses can now immediately capitalize and expense R&D-related equipment and costs, rather than amortizing them over five years. This change boosts ROI and is designed to stimulate domestic innovation, reinforcing the U.S. position in high-tech manufacturing and development.

4. Permanent corporate tax rate

The bill also makes permanent the 21% corporate tax rate originally established under the 2017 Tax Cuts and Jobs Act. This provides ongoing tax savings, freeing up capital for wages, expansion, and reinvestment. While the lower rate may reduce short-term tax revenue, the long-term strategy is to drive economic growth and increase overall taxable income.

Strategic management of equipment deductions

While the new tax benefits present exciting opportunities, it’s essential for business owners to approach equipment purchases strategically. Choosing the right deduction method depends on each company’s unique financial situation and long-term planning goals. For instance, taking a full deduction in a single year for a large equipment purchase may result in a significantly higher tax liability the following year if no additional investments are made.

To help businesses optimize their approach, KeyBank offers both loan and lease financing structures tailored to different tax strategies:

• Loans are ideal when a business can fully utilize the depreciation benefits. By owning the equipment, the company retains the right to claim bonus depreciation, resulting in a substantial immediate tax deduction and improved cash flow.
• Tax leases, on the other hand, can be more advantageous for equipment-intensive businesses that may not benefit fully from depreciation. In this structure, KeyBank owns the equipment and leases it to the client. The bank claims bonus depreciation and passes the savings on through lower monthly payments. The business still benefits by deducting lease payments over time, effectively reducing the after-tax cost of ownership.

This “win-win” approach allows businesses to extract maximum value from the tax provisions — especially when planning for large, one-time equipment purchases. By spreading deductions over several years, companies can maintain more consistent tax liabilities and better align expenses with revenue.

The current tax environment has the potential to be very advantageous to businesses that not only need equipment but also understand how to best leverage tax benefits. KeyBank’s equipment financing experts can offer businesses a suite of tailored products that maximize the value of the new tax structure and support their growth goals.