Case Studies
Entity Setup Case Study: Depreciation Advantages for Manufacturing Firms Under OBBB
Manufacturing businesses may significantly reduce tax burdens under the One, Big, Beautiful Bill through the Qualified Production Property rules—this case study explains how.
By NomadicTax Research Team • 5-8 min read • May 30, 2026
## Background
The One, Big, Beautiful Bill (OBBB), signed into law on July 4, 2025, introduced a special depreciation allowance allowing **100% first-year depreciation** deduction for qualified production property placed in service between **July 5, 2025 and December 31, 2030**. Qualified production activity includes manufacturing, agriculture, chemical production, or refining that yields substantially transformed products. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))
## Case Study: Acme Manufacturing Co.
**Scenario:** Acme Manufacturing builds a new component machinery for its plant—qualifying production property—costing $2 million, placed in service August 2025.
### Without OBBB
Under prior law, Acme would depreciate the equipment over **7 years** (MACRS) and only claim maybe ~14-16% depreciation in year one.
### Under OBBB
Acme can elect **100% immediate deduction** in the first year, meaning Acme deducts the full $2 million against taxable income for year 2025. Huge tax saving; if Acme’s effective tax rate is 21%, that’s about $420,000 in tax saved immediately.
### Transition Rules & Caveats
- IRS Notice 2026-16 provided **interim guidance** for definitions, election process, and recapture rules if the property later fails to meet the qualification criteria. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-special-depreciation-allowance-for-qualified-production-property-announce-upcoming-proposed-regulations-under-the-one-big-beautiful-bill?utm_source=openai))
- The eligible property must be “qualified production property,” meaning used as an integral part of a qualified production activity—nonresidential real property qualifies when integral.
- Recapture rules apply if in later years the property ceases to meet the criteria.
- Must elect treatment appropriately on tax return—see IRS guidance on election timing.
## Actionable Setup Advice
- If you’re setting up a manufacturing or production entity, assess your capital plan—time acquisitions within eligibility window (before Jan. 1, 2031).
- Structure property purchases to ensure real property qualifies; review facility design or equipment usage to meet “integral part” test.
- Maintain thorough documentation for basis, cost, date placed in service, and production activities.
- Consult your accountant to elect deduction properly when filing.
## Broader Impacts for Entity Setup
New or expanding production businesses should consider:
- Leasing vs owning—owning gives better access to full depreciation.
- Geographic and asset structure to meet asset type and production activity definitions.
- Cash flow benefits from large first-year deductions can be reinvested or offset other income.
Manufacturers can strategically use OBBB’s special depreciation allowance to accelerate tax savings, improve competitive edge, and make entity setup more tax-efficient than ever before.