Tax Planning
Maximizing Depreciation: How Businesses Can Use the § 168(n) Allowance Under the One, Big, Beautiful Bill
Businesses acquiring production-property can claim a full first-year depreciation deduction under § 168(n) — here’s who qualifies, how it works, and what elections and recapture rules apply.
By NomadicTax Research Team • 5-8 min read • March 16, 2026
## What is § 168(n) under OBBB?
The One, Big, Beautiful Bill (Public Law 119-21) added IRC § 168(n), which provides a **special first-year depreciation allowance (100%)** for *qualified production property* (QPP) placed in service after July 4, 2025. This is a major change from the gradual phase-downs of earlier depreciation rules. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Who qualifies as “Qualified Production Property”?
To qualify under § 168(n), property must satisfy several requirements:
- Be **nonresidential real property** used in a trade or business, under normal MACRS rules. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
- Be used as an **integral part** of a *qualified production activity* (QPA) as defined in the law. Examples include manufacturing, processing, producing tangible personal property, etc. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
- Construction must **begin after January 19, 2025 but before January 1, 2029**. Property must be placed in service after July 4, 2025 and before January 1, 2031. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
- The property must be *original use* by the taxpayer unless certain used property meets special rules about prior use between Jan 1, 2021 and May 12, 2025. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## How to elect and apply the allowance
- Taxpayers must **designate property as QPP** via a formal election under § 168(n) in their tax return. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
- Once elected, you can deduct **100% of the adjusted basis** as a depreciation deduction in the first tax year. Subsequent depreciation for that property begins from a basis reduced by that deduction. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Recapture and change in use
If at a later date the property ceases to be used as part of a QPA (e.g., converted to a different use), then **depreciation recapture** rules will apply, possibly treating part of it as newly placed in service with a recomputed basis. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Practical examples
- A manufacturer builds a plant beginning construction in September 2025, places it in service in mid-2026. If qualifies as QPP, they may deduct full cost in 2026 instead of depreciating over 39 years.
- If only part of factory square footage is used for production (rest for office), allocate basis (using square footage or cost allocation) to eligible portion. Election and partial basis allowed. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Actionable insights
- Review upcoming or recent capital projects to see if their construction timeline fits between the eligible windows (after Jan 19, 2025 to Jan 1, 2029).
- Use proper documentation (cost segregation, engineering plans) to support elections and component classification.
- Track property changes and usage so once use changes, you can handle recapture properly.
- Coordinate with tax advisors and ensure your returns include the proper election.