Understanding the Special Depreciation Allowance (Section 168(k))
Under the One, Big, Beautiful Bill Act of 2025, businesses may now elect to take 100% first-year depreciation on qualified production property placed in service after July 4, 2025, and before January 1, 2031. This allows companies engaged in manufacturing, chemical production, agriculture, or refining to write off the full unadjusted depreciable basis of eligible assets immediately rather than spreading deductions over years. (irs.gov)
What Counts as Qualified Production Property and Activity
You’ll need to meet specific criteria:
- Property must be nonresidential real property used as an integral part of a qualified production activity (e.g., a plant facility).
- The production activity must involve substantial transformation of inputs into a qualified product. Simple resale or distribution won’t qualify. (irs.gov)
How and When to Elect the Allowance
- The election must be made in the year the property is placed in service.
- Be sure to maintain good records documenting when the property was placed in service, its use, and its depreciation basis.
- The allowance applies only during the limited period the law is in effect: from mid-2025 through the end of 2030. (irs.gov)
Practical Examples
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Example A: A farmer installs a new processing line in a facility on August 1, 2025 — unadjusted basis $1,000,000. Since service is placed within the eligible window and activity qualifies, the full $1,000,000 can be depreciated in 2025.
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Example B: A refinery purchases machinery in June 2025 but doesn’t place it in service until March 2026. Even though the purchase was earlier, the 100% depreciation applies based on placed-in-service date being within the eligible period. Meanwhile, for property placed after December 31, 2030, the full depreciation won’t be available. (irs.gov)
Actionable Steps for Businesses
- Audit existing assets to identify whether any qualify for treatment under these rules.
- Time asset purchases and installations to occur between July 4, 2025 and December 31, 2030.
- Work with tax advisors to ensure elections are properly made and depreciation recapture risk is managed, especially if an asset later ceases to qualify.
- If needed, comment on proposed regulations — Treasury and IRS invited feedback in Notice 2026-16. (irs.gov)
Taking advantage of this accelerated depreciation can deliver significant cash flow benefits — allowing reinvestment into core business operations — but must be done with compliance and planning in mind.