Background

On July 4, 2025, President Trump signed what is actually called “The One Big Beautiful Bill,” but which has since been described using many different acronyms including OB3, OBBBA, OBBB and just BBB. 

The bill is indeed big at over 900 pages!  For purposes of this article let’s call it simply OB3.

Let’s see what OB3 has in store for the equipment leasing and financing industry.

Extension of Bonus Tax Depreciation

OB3 reverted to 100% bonus tax depreciation and made it permanent (until the next time). The reversion was retroactive to January 20, 2025, which was the President’s inauguration day.  So, both new and used personal property (equipment) subject to certain restrictions such as prior ownership, can be depreciated using 100% bonus depreciation. Taxpayers may opt out by claiming the immediately prior 40% bonus depreciation scheme or may choose standard Modified Accelerated Cost Recovery System (MACRS) or straight-line depreciation.

Observation: The additional bonus depreciation gave many lessors their own economic bonus, however lessees which entered leases since January 19, 2025 may ask for a repricing; lessors should be prepared to address those requests to maintain customer satisfaction. 

Bonus Depreciation for Qualified Production Facilities

Newly introduced is 100% bonus depreciation for newly placed-in-service “qualified production facilities” (QPFs). Ostensibly these are facilities first placed-in-service as a QPF by the taxpayer which otherwise would have been depreciated over 15–39 years. However, the 100% bonus is NOT available to a lessor of the property, only the actual qualified manufacturer or producer. There is also some confusion surrounding what types of facilities are qualified since OB3 defines “production” as pertaining to agricultural or chemical production. We find this somewhat narrowly defined and may require clarity when the Treasury Regulations are issued. 

Observation: Since lessors may not claim the bonus depreciation, perhaps the best option would be for a lessor to provide a synthetic lease for the financing, where the lessee retains the tax benefits of the asset and can deal with the nuances of the tax requirements themselves. If the opportunity arises, the ELFA may suggest expanding the opportunity to lessors and obviously extend it to all forms of manufacturing. Your opinions would be appreciated!

Sec. 163j Interest Expense Limitation

The interest expense limitation had reverted to the excess of 30% over tax EBIT which created many situations where net interest expense would not have been currently deductible, in particular for operating lessors (renters of construction equipment, railcars, material handling etc.) who lend less often and regularly rent such assets for shorter periods. A recent Equipment Leasing & Finance Foundation study found that when the deduction was based on EBITDA, a portion of the interest expense might effectively be rendered permanently non-deductible. Fortunately, OB3 reverted to tax EBIT and fewer taxpayers may be subject to this limitation. 

Observation: Sec 163j remains a sensitive topic; lessors may find some prospects, including operating lessors, still potentially affected by the limitation and thus may be candidates for tax leases, since tax rent is not limited by 163j. 

Recission of Many Alternative Energy Investment Credits

As expected, tax incentives for solar and wind alternative energy investments are being eliminated, as are tax credits for electric vehicles.

New wind and solar projects must commence construction within 12 months of the OB3 signing and be placed in service by December 31, 2027, which creates quite a short timeframe for most projects other than smaller ones.

Essentially Congress felt that the Tax Code had subsidized the solar and wind industry enough and that they should exist on their own economic merits, not to mention the President’s belief that offshore windfarms “kill the whales” and that utility-grade solar facilities take up too much physical space which could otherwise be used for agricultural purposes (or perhaps golf courses?).  

Commercial clean vehicles had until September 30,2025 to be acquired to qualify for the Sec 45W tax credits.  

The two general areas that remain are (i)transferability of existing tax credits and (ii) tax credits and incentives for certain other forms of alternative energy facilities. Energy storage facilities (i.e. batteries) and other types of “technology neutral” alternative energy sources remain eligible for credits and have until the end of 2033 to commence construction.

The concepts of Prohibited Foreign Entities and Foreign Entities of Concern were also introduced, which ends technology neutral tax credits for projects that utilize too much equipment largely from China or that rely on Chinese equity or debt.

The Inflation Reduction Act was heavily skewed with alternative energy incentives, so OB3’s elimination of them is a somewhat abrupt change of direction. 

Given that solar and wind have been the dominant forms of alternative energy for perhaps 25 years, to me it’s a shame that the incentives have been eliminated so quickly without a phase-down and more detailed analysis period. Perhaps future administrations will think otherwise.   

Observation: Equipment financing has always adapted to changes in the marketplace. It may be time now for new forward thinking and an examination of the next generation of “alternative energy” facilities.

Conclusion

Parts of OB3 are somewhat mundane, while the change in direction for alternative energy facilities is somewhat aggressive. It may be time to look at new technologies to see what is next for the equipment leasing industry.