Strategic Capital Investment: Leveraging Section 179 Expansion and Multi-Entity Structures in the Building Component Manufacturing Industry Post-OBBBA

The recently enacted One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, marks a transformative moment for U.S. tax policy, particularly for capital-intensive sectors like building component manufacturing. This comprehensive legislation significantly expands Section 179 expensing and permanently restores 100% bonus depreciation, creating an unprecedented environment for immediate tax deductions on qualifying equipment investments.

For building component manufacturers, whose operations rely heavily on specialized machinery for efficiency, precision, and scalability, these updates offer a powerful lever for optimizing cash flow, accelerating growth, and enhancing competitiveness. The ability to immediately expense a larger portion, or even the full cost, of new and used equipment can dramatically reduce taxable income, freeing up critical capital for reinvestment and strategic expansion.

The indispensable role of professional tax advisory and integrated financial planning cannot be overstated. Consulting experts is crucial to ensure compliance with IRS regulations (especially controlled group rules), maximize tax savings, optimize cash flow, and support long-term growth.

Section 179 Expansion: Unlocking Immediate Expensing Opportunities

The OBBBA has significantly expanded the Section 179 deduction. For the 2025 tax year, the maximum Section 179 deduction limit has doubled from $1.25 million to an impressive $2.5 million. The deduction begins to phase out dollar-for-dollar when total eligible purchases exceed $4 million, a substantial increase from the previous $3.13 million threshold, fully phasing out at $6.5 million. This expanded threshold ensures that a broader range of businesses, particularly small and mid-sized entities, can take full advantage.

Section 179 allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year, provided it is placed in service in that same year. For building component manufacturers, this includes:

• Machinery and equipment: Automated production lines, fabrication machinery, welding equipment, cutting tools, material handling systems.
• Off-the-shelf software: ERP systems, CAD/CAM software, automation control systems.
• Improvements to nonresidential real property: Roofs, HVAC systems, security systems, fire protection systems.

To qualify, equipment must be placed in service by December 31 and used more than 50% for business.

Section 179 vs. 100% Bonus Depreciation: Key Differences

Both Section 179 and 100% bonus depreciation enable immediate expensing but operate with distinct rules:

For optimal tax planning, these provisions can be combined. Section 179 offers flexibility for purchases below its phase-out. For larger investments or when creating an NOL is desired, 100% bonus depreciation applies to the remaining cost after Section 179. The permanence of 100% bonus depreciation removes previous uncertainty, enabling long-term capital planning.

Multi-Entity Structures: Amplifying Tax Advantages and Mitigating Risk

Multi-entity structures, such as parent-subsidiary arrangements or controlled groups, offer strategic advantages like enhanced liability protection and tax flexibility. However, their interaction with Section 179 limits requires careful consideration.

Crucial Clarification on Controlled Groups: The IRS explicitly states that “component members of a controlled group... are treated as one taxpayer in applying the dollar limitation.” This means the $2.5 million Section 179 deduction limit and the $4 million phase-out threshold apply to the entire controlled group collectively, not to each individual entity. Strategic planning must focus on optimizing this single, group-wide Section 179 limit through careful coordination of equipment purchases and deliberate allocation of the shared deduction.

Intercompany equipment leasing and financing arrangements within multi-entity frameworks also offer strategic advantages. Intercompany loans can provide flexible, lower-cost capital for equipment, with deductible interest payments (if at “arm's length”). Intercompany leasing allows for strategic placement of equipment ownership to optimize depreciation or expense deductions, subject to the controlled group aggregation rules for Section 179.

Equipment Financing in Building Component Manufacturing: Industry-Specific Considerations

Capital expenditures are fundamental for building component manufacturers, driven by growth objectives and maintenance needs. The industry is experiencing a surge in construction spending, demanding investment in advanced machinery like industrial automation, specialized fabrication machinery (for concrete, steel, timber), and material handling systems.

The choice of equipment financing method carries distinct tax implications:

• Direct Purchase/Equipment Loan: You own the asset, making it fully eligible for Section 179 and 100% bonus depreciation. Interest payments are also deductible.
• Capital Lease (Finance Lease): Treated as a purchase for tax purposes; eligible for Section 179 and bonus depreciation. The interest portion of payments is deductible.
• Operating Lease: A rental agreement; not eligible for Section 179 or bonus depreciation as the leasing company retains ownership. However, full monthly lease payments are 100% deductible as a business expense.

Building component manufacturers face challenges like significant upfront costs, cash flow strain (especially in modular construction with high material deposits), budget constraints, and sometimes lender hesitation. The enhanced Section 179 and 100% bonus depreciation are crucial tools to alleviate cash flow strain by reducing the net cost of equipment acquisition, making modernization more viable.

Actionable Strategies for Building Component Manufacturers

To leverage these opportunities, manufacturers should:

• Conduct a comprehensive capital expenditure review: Annually assess planned purchases for Section 179 and bonus depreciation eligibility.
• Optimize deduction allocation for controlled groups: Strategically allocate the single group-wide Section 179 deduction among entities.
• Strategically time purchases: Ensure equipment is “placed in service” by December 31 for current-year deductions.
• Leverage intercompany financing: Explore intercompany loans or capital contributions for efficient capital deployment.
• Critically review and structure lease agreements: Align lease types (capital vs. operating) with desired tax outcomes.
• Utilize deductions for new and used equipment: Both qualify if “new to your business,” offering cost-effective upgrade options.

Conclusion

The One Big Beautiful Bill Act ushers in a new era of tax incentives, fundamentally reshaping capital investment strategies for building component manufacturers. The expanded Section 179 deduction and permanent 100% bonus depreciation offer unparalleled opportunities for immediate expensing, significantly improving cash flow and providing a powerful financial impetus for growth. By proactively understanding and strategically leveraging these provisions within well-structured multi-entity frameworks and optimized equipment financing choices, manufacturers can accelerate modernization, enhance operational efficiency, and build a stronger financial foundation for sustained competitiveness.

We are Acceptance Leasing and Financing Service, Inc. We were established in 1992, which puts us in our 33rd year of business. We pride ourselves on our Certified Leasing and Financing Professional designation. We are a member of SBCA and a frequent attendee of the BCMC tradeshows. We can provide financing for any new and, regardless of age, used equipment. We invite you to contact us at 412 262-3225 to discuss your particular situation.