Article
How the new tax law may benefit the oil and gas industry
Aug. 5, 2025 · Authored by Lori Mettille, Cody Schoenig
The sweeping tax and spending legislation enacted on July 4, 2025, commonly referred to as the One Big Beautiful Bill Act (OBBBA), includes several provisions that may be beneficial to the oil and gas industry, including but not limited to:
- Extension of 100% bonus depreciation
- Favorable interest expense provisions
- Restores the ability to deduct domestic research and experimental expenditures.
Notably, the OBBBA didn’t result in any changes to the favorable expensing provisions for intangible drilling costs and percentage depletion.
Explore the law’s new provisions and how they support the oil and gas industry with the following insights.
Bonus depreciation
Prior to the OBBBA, the first-year bonus depreciation allowance under Section 168(k) was scheduled to phase down to 40% in 2025, 20% in 2026, and sunset entirely to 0% in 2027.
The OBBBA increases the first-year bonus depreciation allowance under Section 168(k) to 100% for property acquired after Jan. 19, 2025, and makes the depreciation allowance permanent. This allows taxpayers to frontload depreciation deductions for qualifying property in the first year of ownership, lowering initial tax liability.
Interest expense
The current calculation of adjusted taxable income under Section 163(j) uses earnings before interest and taxes (EBIT). Effective for tax years beginning after Dec. 31, 2024, the OBBBA permanently shifts this calculation to earnings before interest, taxes, depreciation, depletion, and amortization (EBITDA), which effectively allows for larger deductions for business interest expense.
This restored EBIDTA treatment aligns with the permanent reinstatement of 100% bonus depreciation previously mentioned.
The OBBBA also establishes a new ordering rule that requires the Section 163(j) limitation be determined before the application of any other interest capitalization provisions, with exceptions.
Research and experimental (R&E) expenses
Under new Section 174A, the OBBBA permanently eliminates the capitalization requirement for domestic R&E expenditures under Section 174 for tax years beginning after Dec. 31, 2024.
Related sections
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