Entity Setup
Tax Planning: Leveraging the New Special Depreciation Allowance under the One, Big, Beautiful Bill
Businesses can now elect to take up to **100% depreciation** on certain production property placed in service after July 4, 2025 — here's how to make it work in your favor.
By NomadicTax Research Team • 5-8 min read • March 31, 2026
## Understanding the Special Depreciation Allowance
The One, Big, Beautiful Bill (OBBB) introduced new depreciation rules for **qualified production property** placed in service after **July 4, 2025** and before **January 1, 2031**. Under those rules, a taxpayer may elect to deduct **100% of the unadjusted depreciable basis** in the year the property is placed in service. ([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 property refers to nonresidential real property used in manufacturing, chemical production, agricultural production, refining, or similar activities where the property undergoes substantial transformation. ([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))
## Steps for Making the Election
1. **Verify eligibility**: Ensure your property qualifies (nonresidential real property + qualified production activity). If it doesn’t meet both, the full allowance may not apply. ([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))
2. **Place property in service between July 4, 2025 – December 31, 2030**. That’s the statutory window. ([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))
3. **File the election properly**: Your tax return needs to reflect the election. Keep documentation on when construction or installation began, if applicable. ([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))
4. **Watch depreciation recapture**: If the property ceases to qualify later (e.g., no longer used in qualified production), you may have to recapture depreciation. ([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 Example
Suppose your business builds a processing facility on **September 1, 2025**. The cost basis (depreciable basis) of nonresidential building components qualifies, and you expect it to operate for more than 20 years. You can elect in your **2025 tax return** to take **100% depreciation**, expensing the full basis immediately rather than spreading it out over 39 years. If later re-purposed (say converted to non-production use in 2028), recapture rules may require adjustments.
## Cash Flow and Tax Planning Implications
- **Big upfront tax deduction**: Can significantly reduce taxable income in the year of service. Useful for capital-intensive businesses ready for a large deduction.
- **Timing decisions matter**: Pushing the placement-in-service date slightly earlier (before 2031) may allow eligibility, while delays could cost you.
- **Evaluate long-term forecasts**: If you're expecting higher income in later years, sometimes stretching depreciation via MACRS vs. taking 100% now may make sense.
## Actionable Advice
- Perform cost segregation to identify property class components vs building structure to maximize value of qualified production property.
- Review construction and planning timelines to confirm “place in service” dates.
- Keep thorough records detailing the nature of the property, business purpose, activities, and changes if proposed use changes.
- Consult with tax advisors to ensure your state tax implications align, as state law may follow federal or have deviations.
With careful planning, businesses can maximize this new special depreciation allowance to accelerate deductions and improve short-term cash flow, while still managing long-term tax exposure through recapture rules.