Expensing for Equipment and Machinery

Author: Preston Brashers

TOPLINE:

The One Big Beautiful Bill (OBBB) locks in full and immediate expensing for equipment and machinery to ensure the tax code doesn’t penalize companies that make the sorts of physical investments that advance worker productivity, growth, and wages.

BACKGROUND:

[if gte mso 9]> Normal 0 false false false false EN-US X-NONE X-NONE One of the key business reforms of the 2017 Tax Cuts and Jobs Act (TCJA) was to allow full and immediate expensing of equipment and machinery costs. (to deduct these costs from taxes in full and in the year the spending occurred). Previously, instead of allowing companies to deduct the costs associated with acquiring and deploying equipment and machinery (as is allowed for other legitimate expenses), the tax code required companies to capitalize those costs following convoluted depreciation schedules of 3, 5, 7, 10, 15, or even 20 years. By the time that taxpayers were allowed to fully deduct such costs, inflation and the time value of money would erode the value of these delayed deductions.

TCJA allowed businesses to fully and immediately deduct the cost of equipment and machinery placed in service between 2018 and 2022. Full and immediate expensing was in the process of phasing down beginning in 2023 and fully expiring in 2027.

What OBBB Did:

• Reinstated full and immediate expensing for equipment and machinery and made it permanent.

Why It Matters?

• It fixed a key flaw of the business tax system that double taxed and discouraged investing in new productive capacity, a key driver of economic growth.
• Many considered full and immediate expensing for equipment and machinery to have been the most pro-growth provision in TCJA.
• OBBB improved on TCJA by not only extending full and immediate expensing, but by making it permanent.
• Full and immediate expensing for equipment and machinery is a $363 billion tax cut over 10 years, according to JCT estimates.

Where Can I Find Changes?

OBBB Sec. 70301;   26 U.S.C. § 168(j).

BOTTOMLINE:

Full and immediate expensing for equipment and machinery is the correct tax policy. It simplifies business taxes and avoids penalizing companies that invest in the productivity of their workers by purchasing new equipment and machinery. By making full expensing permanent, companies can plan investments as far in advance as they like without worrying about the provision sunsetting.

This memo is part of the One Big Beautiful Booklet, a collection of more than 60 memos that examine and summarize the major aspects of the One Big Beautiful Bill – the signature legislative achievement of President Trump and the 119th Congress.

more ob3-60 memos