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)
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)
- Qualified production activity includes manufacturing, agricultural processing, refining, chemical production—basically substantial transformation into a new product. (irs.gov)
- Only property “placed in service” in the proper dates range qualifies—be sure you meet that test. (irs.gov)
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)
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)
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.