Tax Planning
How Businesses Can Leverage the New Special Depreciation Allowance for Qualified Production Property
The One, Big, Beautiful Bill introduced a 100% special depreciation allowance for certain qualified production property—discover how to qualify, make the election, and avoid recapture issues.
By NomadicTax Research Team • 5-8 min read • March 12, 2026
## What’s New under Notice 2026-16
The One, Big, Beautiful Bill (OBBB) gives a fresh tool: a **special depreciation allowance** allowing businesses to deduct **100% of the unadjusted depreciable basis** of *qualified production property* placed in service in a taxable year between **July 4, 2025** and **December 31, 2030**. ([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))
## What Counts as Qualified Production Property (QPP)
- Must be **nonresidential real property**: buildings, fixtures, other structures used by the taxpayer as an integral part of a “qualified production activity.” ([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))
- Qualified production activity includes manufacturing, agricultural processing, refining, chemical production—basically substantial transformation into a new product. ([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))
- Only property “placed in service” in the proper dates range qualifies—be sure you meet that test. ([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))
## Electing the Deduction & Timing
You must formally elect to treat property as QPP to take the special allowance. The election is made on a timely filed Federal tax return. Be aware of the statute’s tight limits on which years qualify. ([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))
## Sketching out Recapture Risks
If any QPP later **ceases** to meet requirements—for example, if its use changes, or it’s no longer integral to the qualified production activity—you’ll need to **recapture depreciation** according to rules in Notice 2026-16. ([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))
## Practical Examples & Action Items
**Example**: A food processing plant (nonresidential real estate) built in August 2025 qualifies as QPP. If placed in service by Nov. 30, 2025 and you elect it, you may depreciate 100% of the basis in that year. If in 2028 you convert part of it to office space not used in production, recapture may apply just for that portion.
**Checklist for Business Owners**:
- Identify applicable property (e.g. factories, processing units) placed in correct timeframe.
- Document activity meets “substantial transformation” tests.
- Ensure your return has the QPP election and keep schedule of basis.
- Monitor property’s use scenario year-to-year—if a change might trigger recapture, adjust records and consult tax counsel.
## Why This Matters for Tax Planning
- Huge upfront deduction impact: boosts cash flow by allowing full depreciation immediately, not over decades.
- Helps businesses doing large capital investments in production, manufacturing, agriculture, or refining.
- But riskier if activity changes—must plan with exit strategies that consider recapture liability and loss of allowance.
**Next Steps**: Consult with a CPA or tax attorney to analyze each asset for QPP eligibility under Notice 2026-16, make necessary internal process changes, and weigh carryforward vs immediate write-off trade-offs.