New IRS provision can offset tariffs on new plastics machinery

By Karen Hanna

A provision in the budget passed last year by the U.S. Congress provides potential tax relief for manufacturers hit hard by tariffs.

With the ability to claim 100 percent depreciation on new or used equipment placed in service after Jan. 19, 2025, manufacturers can offset a significant portion of the costs of tariffs imposed since President Trump took office, according to an April 20 blog post by Perc Pineda, chief economist for the Plastics Industry Association.

The advice comes as U.S. Customs and Border Protection (CBP) has launched the first phase of Consolidated Administration and Processing of Entries (CAPE) functionality, designed to help importers of products and materials, including plastics processing equipment, recoup what they paid toward the International Emergency Economic Powers Act (IEEPA) tariffs struck down by the U.S. Supreme Court in February.

In his post, Pineda said that tariffs and interest rates tamped down equipment investment last year, as real GDP grew 2.1 percent. Operating on tight margins, small- and mid-sized plastics processors have been especially hampered by higher costs, he said.

But, he said, the new 100 percent depreciation provision, detailed in IRS Notice 2026-11, “significantly lowers the after-tax cost of new equipment and gives businesses a strong incentive to invest despite higher upfront prices.”

“Businesses,” he said, “can deduct the full cost of eligible new or used equipment in the year it is placed in service, rather than spreading depreciation over 5, 7, 10, or 20 years. This applies to most industrial machinery, molds, and equipment with recovery periods of 20 years or less.”

Unlike the Section 179 depreciation provision, the provision has no restrictions on the dollar amounts claimed. For plastics processors, who can claim the value of both equipment and molds, the provision can create or increase a net operating loss (NOL) to carry forward. 

As an example of how manufacturers might benefit from the new provision, Pineda put forward a scenario in which a processor purchases a new or used $500,000 injection molding machine (IMM). Depending on the country of origin of the machine, the molder would pay a 25 percent tariff on the press, adding $125,000 to its cost and creating a total cost of $625,000.

A molder that did not take 100 percent depreciation on company taxes for the machine but instead opted to take five-year straight-line depreciation could expense one-fifth of the cost of the machine — $125,000 — in the first year, resulting in a tax savings of $26,250 in that first year, based on a corporate tax rate of 21 percent.

However, that same molder would enjoy tax savings of $131,250 in the year it put the IMM in service by taking advantage of the new ability to claim the full cost of the press, including the tariff, immediately. By doing so, the molder would completely offset the $125,000 tariff.

“The immediate tax benefit largely offsets the tariff hit, shortening the payback period and improving ROI. Many businesses effectively reduce the tariff’s bite by 30-40 percent or more when factoring in time value of money. This incentive encourages companies to accelerate purchases, invest in domestic or near-shore alternatives and modernize operations,” Pineda wrote.

As they consider potential new investments, manufacturers also have options when it comes to the possibility of recouping their share of the IEEPA tariffs, with total potential refunds valued at around $130 billion or more. To get money back, importers must have enrolled in CBP’s Automated Clearing House (ACH) refund portal.

The CAPE tool for filing for refunds went live April 20, and according to the CBP website, “Importers and authorized brokers should anticipate that valid IEEPA refunds will generally be issued within 60-90 days following acceptance of the CAPE Declaration.”