New Business Tax Incentives & Expensing Rules Under H.R.1 (2025 Update)

New Business Tax Incentives Under H.R.1 – What Changes in 2025?

The H.R.1 tax package includes several major reforms focused on boosting business investment, supporting small companies, and encouraging domestic production. These updates take effect beginning in 2025, and they reshape how businesses expense equipment, claim deductions, and plan long-term capital investments.

Here is a breakdown of the key business-focused provisions.

1. 100% Full Expensing Permanently Restored

Under previous law, the 100% bonus depreciation enacted in 2017 was gradually phasing down:

• 80% in 2023

• 60% in 2024

• 40% in 2025

• 20% in 2026

What H.R.1 does:

• Restores 100% immediate expensing for qualified capital investments

• Applies to machinery, equipment, technology, and certain qualified improvements

• Designed to support manufacturing, energy, biotech, and high-growth startups

This is one of the most business-friendly elements of the entire bill.

2. Expanded Section 179 Deduction Limits

Section 179 allows small businesses to deduct the full purchase price of qualifying equipment.

New limits under H.R.1:

• Deduction cap increased to $2.5 million

• Phase-out threshold raised to $4 million

• Indexed for inflation annually

This makes it easier for small and mid-size companies to fully deduct major investments in the same year they are purchased.

3. R&D Expensing Fully Restored

The 2022 change that forced companies to amortize domestic R&D costs over 5 years is reversed.

H.R.1 restores:

• Immediate deduction of R&D expenses

• Applies to U.S.-based research

• Designed to support innovation sectors (biotechnology, AI, clean energy, aerospace)

This provision is especially important for startups and tech-focused companies that rely heavily on R&D cash flow flexibility.

4. Interest Deduction Rules Updated

Businesses can once again deduct a larger portion of interest expenses.

Updated limitations:

• Interest deduction based on EBIT (earnings before interest and taxes)

• Instead of the stricter EBITDA-based limit from previous law

This improves net cash flow for debt-financed firms and capital-intensive industries.

5. Domestic Production Incentives Strengthened

To encourage U.S.-based manufacturing, H.R.1 includes:

New incentives include:

• Enhanced deduction for domestic manufacturing activities

• Tax credits for U.S.-sourced supply chain investments

• Production-based incentives for critical technologies (battery tech, semiconductors, biotech manufacturing)

These provisions align with broader U.S. industrial policy initiatives such as the CHIPS Act.

6. Enhanced Small Business Credits

Small businesses receive simplified access to several credits:

• Startups can apply more payroll tax credits against employer obligations

• Eligibility thresholds expanded for small-business R&D credits

• New credit introduced for digital modernization and cybersecurity upgrades

These changes aim to reduce compliance burdens and help small firms scale.

7. Corporate Tax Rate Remains Unchanged (For Now)

Despite proposals earlier in the year, the 21% corporate tax rate is unchanged in H.R.1.
This provides stability for financial planning and corporate budgeting.

8. Who Benefits Most from These Changes?

Most benefited:

• Manufacturing & industrial companies

• Tech, biotech, and R&D-intensive startups

• Small businesses making equipment purchases

• High-investment industries (energy, aerospace, logistics)

Less benefited:

• Firms with minimal capital expenditures

• Very large corporations unaffected by Section 179

• Service-based firms with low R&D or asset needs

9. Bottom Line

H.R.1 introduces one of the most investment-friendly business tax packages in recent years. With restored full expensing, enhanced small-business deductions, and stronger domestic production incentives, the new rules aim to reduce costs and boost U.S. competitiveness across high-tech and industrial sectors.

For business owners, these changes open the door to more aggressive growth strategies starting in 2025.