Renewal and Extension of 100% Bonus Depreciation for Industrial Facilities?
The President commented in his State of the Union Address about restoring a “100% expensing” of depreciation for industrial facilities and equipment retroactive to January 20, 2025. The promise is part of the administration’s game plan to boost US domestic manufacturing production. In addition, this would be coupled with sped up permitting processes and the pressures of tariffs to push production back into US domestic markets.
The proposal had not yet been fully released at the time of writing, but leaks of the program suggest that it is aimed at restoring the Tax Cuts and Jobs Act (TCJA) provision which allowed businesses to fully deduct the cost of qualifying assets (primarily machinery and industrial facilities) in the year they are placed into service.
This cannot be done by executive order; tax modifications require Congressional approval. The TCJA is phasing out (40% in 2025 and will reduce to 0% by 2027) and it will likely become part of a much larger package aimed at making the TCJA permanent or at minimum, a lengthy extension of the act. A similar effort failed in 2024, but a thin Republican majority in both the House and Senate today might get this done (or at least components of it) in the 2025 Congress.
This could be one of the most contentious debates in Congress this year, but if passed, it could provide a strong windfall of additional industrial projects in the years to come.
Additional Reading: Thomson Reuters
The Two Sides of Construction Data in 2025
Total construction spending was still growing at a 3.3% annual rate through January (latest available). Interestingly, both residential and nonresidential construction spending were trending at 3.2% and 3.4% respectively. But many analysts are noticing that the percent growth rate is falling. As an example, construction of manufacturing facilities grew on average at a 25% annual rate throughout much of 2024. This year, through January, the sector grew at just a 5.7% rate and suffered a mild contraction of 0.3% between January and February.
But the other side of the coin tells a different story. Taking the same data from manufacturing construction activity, the $237 billion in spending through February was 195.1% higher than 2019’s levels and averaged annual growth of 24.2% over the 5 year period. In addition, commercial construction had one of the weakest annual growth performances with contraction of 4.4% in February Y/Y. But once again, the $124.9 billion in annualized spending activity was 40.8% higher than 2019 levels and was growing at an annual 7% rate over the past 5 years.
Department of Government Efficiency (DOGE) is expected to affect government spending under the Inflation Reduction Act (IRA) and the CHIPS Act (of which few firms were able to qualify under tight conditions), and funding under those bills is expected to be slowing. But the administration believes that speeding permitting processes and trimming red tape (especially from the EPA) could help spur more construction activity in infrastructure, manufacturing and industrial, laboratory construction and some health care spending, among other sectors. The difference is that much of this spending will transition from government contracted activity to private sector investment and spending. And that transition period could take time to materialize.
Source: Census Bureau
