Tax Planning
Planning Strategies Around the IRS’s Special Depreciation Allowance for Manufacturing Assets
Manufacturers and producers now have an opportunity to write off 100% of the cost of qualified production property under interim IRS guidance—learn what qualifies, how to elect in, and how this moves from theory to practice.
By NomadicTax Research Team • 5-8 min read • February 21, 2026
## What Is the Special Depreciation Allowance Under OBBB?
The One, Big, Beautiful Bill (OBBB) introduced a **special depreciation allowance** that allows taxpayers to elect **100% depreciation deduction** in the first year for **Qualified Production Property (QPP)** placed in service **after July 4, 2025**, and before **January 1, 2031**. ([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)) This applies to **non-residential real property** used as part of certain production activities—manufacturing, chemical production, agriculture, refining, or substantial transformation of raw materials. ([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))
## How the Interim Guidance Works
- The IRS’s **Notice 2026-16** offers definitions for what counts as QPP and 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))
- It explains how to make the **election** to treat certain property as QPP, how recapture rules operate if the property later stops qualifying, and how to calculate the depreciation allowance. ([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))
Taxpayers may rely on this interim guidance until final regulations are issued. ([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))
## Who Benefits Most & Key Scenarios
- **Manufacturers** opening new plants: Say a company builds a facility for chemical processing in 2026—they can fully depreciate supporting non-residential production structures.
- **Refiners or farmers** upgrading equipment integral to production—like silos or machines—can deduct entire cost in year one, instead of over decades.
- **Real estate-heavy production operations** (cold storage, food processing warehouses) might get the same benefit for structural components that qualify.
## Actionable Steps for Businesses
1. **Inventory current and upcoming property investments** to identify assets used in qualified production activity.
2. **Review whether your property meets non-residential real property requirements**—both structure and usage matter.
3. **Make the election properly**—file needed forms and follow IRS definitions under interim guidance.
4. **Track the date placed in service**—must be after July 4, 2025.
5. **Stay updated**—keep track of final regulations to ensure compliance as they may refine definitions or requirements.
## Risks & Considerations
- **Depreciation recapture**: If property stops meeting QPP criteria, you must recapture excess depreciation. The guidance spells this out. ([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))
- **Proper classification**: If a component of your real property is mixed-use or partially excluded, you may need an allocation or risk disallowance.
- **Timing matters**: If duration or service date misalign, you may default back to standard MACRS depreciation rather than 100% in year one.
## Practical Example
Imagine **GreenAg Inc.** builds a large agricultural facility with climate-controlled storage structures integral to its production activity in 2026. Under the guidance:
- The building qualifies as **non-residential real property used in agriculture** (a QPP).
- The cost of the structure and integral components is fully deductible in year one under OBBB.
- If GreenAg later repurposes part of that building for retail sales unrelated to production, a portion may cease to qualify and trigger recapture.
With careful planning and coordination between your tax, engineering, and operations teams, this allowance can generate **major tax savings** and cash flow advantages.
**Bottom line**: This special depreciation option under OBBB represents a once-in-a-decade-level opportunity for production-facing businesses. Whether you're upgrading equipment or constructing production property, understanding and capitalizing on these rules can significantly reduce your tax liability today.