Special Depreciation Allowance for Qualified Production Property

The OBBB creates a new bonus depreciation regime under IRC §168(n), allowing a 100% first-year depreciation deduction for certain qualified real property used in U.S. production, manufacturing, or refining activities.  Identifying qualifying and nonqualifying costs and gaining the most benefit will necessitate a cost segregation study.  When coupled with §168(k), the entire investment in plant and equipment could qualify for a 100% write off in the year placed in service.

Key Features:

• 100% Immediate Expensing

  Taxpayers electing this provision may deduct 100% of the cost of qualified production property in the year it is placed in service.

  
  

• Qualifying Property Criteria:

  To qualify, the property must:

  • Be part of nonresidential real estate.

  • Be used in qualified production activities (manufacturing, production, or refining).

  • Be located in the U.S. or a U.S. possession.

  • Have original use with the taxpayer.

  • Begin construction between Jan 19, 2025, and Dec 31, 2028.

  • Be placed in service by Jan 1, 2031.

  • Exclude areas used for offices, lodging, admin, sales, R&D, software/engineering.

    
    

• Qualified Activities & Products:

  • Must result in a substantial transformation of tangible property.

  • “Production” does not include agricultural and chemical production.

  • Excludes food/beverages made and sold in the same retail space.

    
    

• Special Treatment of Acquired Property:

  Acquired property (not newly constructed by the taxpayer) may qualify if it:

  • Was not previously used in production (Jan 1, 2021 – May 12, 2025).

  • Meets §179(d) acquisition standards.

  • Follows binding contract date rules for timing.

• Additional Provisions:

  • The legislation also includes rules for depreciation recapture and guidance on making the election.