The One Big Beautiful Bill Act was signed into law by President Donald Trump on July 4, 2025. The OBBB offers material benefits to the players in the equipment finance industry including lessors, lessees, lenders, borrowers, manufacturers, distributors, and dealers.
Immediate Expensing And Bonus Depreciation
The industry has prevailed in making permanent the ability of equipment owners to immediately deduct the full cost of equipment without having to spread the deductions over a specified number of years. Under the OBBB, businesses receive up front expensing and bonus depreciation – or additional first year depreciation - for both new and used equipment that was acquired and placed into service after January 19, 2025. Prior to passage of the OBBB, bonus depreciation was phasing downwards.
To be eligible, the equipment must be (1) qualified equipment and (2) placed in service after January 19, 2025, and (3) pursuant to a contract to acquire the equipment that was executed on or after January 19, 2025.
This timing of each element is critical and failure to comply with the requirements will result in dramatically different outcomes. If the equipment was placed in service on January 18, 2025, or was delivered under a contract signed between January 1 and January 18, 2025, the owner will only receive 40% bonus depreciation. The same equipment, delivered on January 20, 2025 pursuant to a contract signed on January 19, 2025 receives 100% deductibility expensing.
If a customer sold its equipment on January 20, 2025, to a bank under a sale-leaseback, the bank qualifies for full and immediate expensing because the equipment was acquired under a contract dated after January 19, 2025 and was placed into service (by the lessee) after that same date.
Immediate expensing under Section 179 applies solely to property that is “used in an active trade or business,” whereas bonus depreciation primarily applies to property “used in a trade or business” or “for production of income.” Bonus depreciation primarily applies to MACRS property with a recovery period of 20 years or less. If the equipment qualifies for both immediate expensing and for bonus depreciation, immediate expensing under Section 179 must be applied before the bonus depreciation. For tax years beginning after December 31, 2024, the OBBB increases the maximum Section 179 deduction to $2,500,000 and increases the phase-down threshold to $4,000,000.
The OBBB also provides 100% bonus depreciation for Qualified Production Property constructed after January 19, 2025 and before January 1, 2029, as long as the property is placed in service before January 1, 2031. Qualified Production Property must be (i) new, nonresidential real property; (ii) constructed by the taxpayer; (iii) placed in service in the United States; and (iv) directly integral to the qualified production activity. The following activities constitute a “qualified production activity”: (a) manufacturing; (b) production (limited to agricultural and chemical production); and (c) refining (the process must result in the substantial transformation of a qualified product, which includes all tangible personal property). Bonus depreciation was previously unavailable for this type of property, which was depreciated over a 39-year recovery period. Immediate tax benefits for this type of property will help businesses navigate upfront costs and encourages investment in equipment.
Analysis
The return of immediate expensing and bonus depreciation and making such tax benefits permanent will add certainty to the equipment finance industry regarding long-term equipment acquisition strategies. Additionally, the Qualified Production Property Bonus Depreciation concept will be particularly important to manufacturers, agricultural and chemical producers and refiners with the efforts to increase re-shoring those industries domestically even though such tax deductions are scheduled to expire at the end of tax year 2028. Meeting the bonus depreciation rules for 2025 might be difficult depending on when assets were ordered due to the requirements of contracts being signed on or after January 19, 2025.
EBITDA Interest Deductions
For taxpayers with average gross receipts in excess of $29 million over the preceding three years, Section 163(j) of the Internal Revenue Code limits business interest deductions to 30% of adjusted taxable income (ATI). In calculating their ATI, from 2017 through 2021, businesses could deduct interest based on earnings before interest, taxes, depreciation and amortization (EBITDA). By law, beginning in 2022, the deduction became 30% of earnings before interest and taxes (EBIT). The OBBB restores the use of EBITDA for tax years starting in 2025. For businesses with significant depreciation and amortization expenses, these changes may improve their taxable position.
Analysis
As interest rates have remained elevated and businesses face increased borrowing costs, the changes brought about by the OBBB will have the effect of providing businesses with more attractive financing options for their equipment needs. Debt financing options that were less advantageous under the stricter EBIT restrictions, are once again becoming more appealing, meaning businesses no longer need to rely as strongly on costly equity funding for their equipment acquisitions. Finance leases and conditional sales will be more appealing. Traditional equipment loans will have enhanced interest deductibility. With these benefits, the expectation is that businesses will increase their cash flow and invest in equipment. An increase in after-tax cash flow is also likely to improve customers’ debt service coverage ratios, with the effect of improving their overall creditworthiness and financial covenant compliance.
Changes to Investment Tax Credits Under the OBBB
In order to receive The Clean Energy Investment (48E) and Production (45Y) Tax Credits, solar projects must (i) begin on or before July 4, 2026 or (ii) be placed into service on or before December 31, 2027. Notably, the “placed in service” requirement does not apply to energy storage projects. Further, if construction of a project begins before July 4, 2026, the December 31, 2027 “placed in service” deadline does not apply, and the regular “beginning of construction” rules remain intact alongside the four-year continuity safe harbor. Thus, developers, manufacturers, investors, tax equity and financing parties must reassess their “beginning of construction” strategies to be eligible for the aforementioned tax credits.
Further, project financiers must prepare to engage in extensive due diligence of their deal parties to avoid disqualification under the prohibited-entity rules. Credits cannot be transferred to “specified foreign entities,” which comprise many different entities. Specifically, such entities include (i) designated terrorist organizations, (ii) designated blocked persons, (iii) entities alleged to be involved in espionage and arms dealing, and (iv) entities alleged to be threats to the United States’ national security. “Specified foreign entities” also cover (a) foreign controlled entities (“control” constitutes the 50% vote or value of a corporation’s stock or a 50% capital interest or beneficial interest) and (b) governments of covered nations, such as North Korea, China, Russia, and Iran. Additionally, “specified foreign entities” include entities and businesses that are incorporated or have their principal place of business in such covered nations.
Analysis
Changes to the Section 45Y and 48E tax credits tighten the eligibility and time frame requirements for such credits, but do not eliminate them entirely, depending on when construction starts, and completion is anticipated. The specified foreign entity rules should have minimal impacts to the equipment finance sector due to existing compliance restrictions on doing business with many of the entities covered, but this will have a broader impact for certain investors.
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