America’s industrial sector just received a major tax break — and for companies in manufacturing, refining, or large-scale production, it could quickly reshape capital-investment decisions.

The Internal Revenue Service and the U.S. Treasury Department have issued detailed interim guidance outlining a powerful new special depreciation deduction for “qualified production property.” The incentive was established under Donald Trump’s One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025.   

Why It Matters

This provision is one of several tax incentives introduced under the One Big Beautiful Bill (OBBB) to spur new investment in manufacturing and production, though many of the practical details had remained uncertain until now.    

The key takeaway: eligible taxpayers may elect to deduct up to 100% of the unadjusted depreciable basis of qualifying property in the year it’s placed in service. In simple terms, that means a business could potentially write off the full cost of an eligible factory buildout immediately, rather than depreciating it over the standard 39-year schedule.

The IRS’s new guidance clarifies those rules, giving companies a clearer framework to rely on immediately when planning investments.  

eligibility Windows for the 100% Manufacturing Deduction

• Service Deadline: Property must be placed in service between July 4, 2025, and January 1, 2031.
• Construction Window: Breaking ground must occur between January 19, 2025, and January 1, 2029.
• The Benefit: Full 100% first-year deduction for all “Qualified Production Property” under the OBBBA and IRS Notice 2026-16.     

While reminiscent of traditional bonus depreciation, this provision is a highly specialized incentive focused exclusively on domestic industrial growth. Under the OBBBA framework, the 100% deduction is restricted to physical infrastructure that serves as a primary engine for U.S.-based manufacturing.  

Not every warehouse or office building makes the cut

The deduction applies only to the portion of nonresidential property used as an integral part of a qualified production activity. That activity must involve substantial transformation of materials into a final product.

Under Notice 2026-16, the IRS has provided a specific framework for what constitutes a “Qualified Production Activity” and how taxpayers must handle the election process.

Qualified Activities: Must involve manufacturing, chemical/agricultural production, or refining that achieves a substantial transformation (e.g., converting raw steel into specialized components). However, passive activities—such as warehousing, basic packaging, or distribution—are strictly excluded. To qualify, your process must do more than just house a product; it must physically alter it.

Election Status: Elective, not mandatory. Must be made on the original return for the year the property is placed in service.

Strict Timeline:

• Construction Start: After January 19, 2025.
• Placed in Service: July 5, 2025 – Dec 31, 2030.

Recapture Risk: Taxpayers face a 10-year look-back period. If the facility’s use changes to a non-qualifying activity (like storage or distribution) within 10 years, the IRS will recapture the accelerated depreciation.

Mixed-Use Allocation: Includes a 95% de minimis rule—if 95% of the facility is used for production, the entire building qualifies.

The Treasury and IRS have authorized immediate use of this new guidance, allowing companies to lock in tax benefits before final regulations are even drafted. This ‘reliance rule’ provides the certainty needed to claim 100% write-offs on current projects, with the agencies promising more detailed rules later this year to further clarify the OBBBA’s manufacturing incentives.   

To qualify, the property must meet several requirements:

• It must be depreciable under MACRS (see Internal Revenue Service Publication 946: https://www.irs.gov/publications/p946)
• It cannot be subject to the Alternative Depreciation System (ADS)
• It must be used entirely for production, or have a clearly identifiable portion that qualifies

Mixed-use buildings can still be eligible, but only the portion directly tied to qualified production activity can receive the deduction.

Real-World Example: How Big Is This Benefit?  

An article in DRS News shows an example of how this could work. Imagine breaking ground on a $60 million manufacturing facility. If a cost-segregation study identifies $50 million of that structure as “Qualified Production Property” (meeting the full-use criteria), you can deduct the entire $50 million in the year the doors open.

Under the old 39-year straight-line rules, that same $50 million would yield roughly $1.28 million in annual deductions. By electing the OBBBA break, you accelerate nearly four decades of tax benefits into a single filing.

Strategic Planning for Manufacturers

For businesses in heavy manufacturing, refining, or agricultural processing, this deduction could:

• Speed up capital investment timelines
  
• Strengthen projected internal rates of return (IRR)
  
• Boost after-tax cash flow
  
• Shape site selection decisions within U.S. jurisdictions     

Conclusion 

Manufacturers should begin planning now to align construction timelines with tax strategy and maximize potential benefits. The One Big Beautiful Bill Act reinstates 100% bonus depreciation for qualified property placed in service after January 19, 2025. A new provision also permits full expensing of qualified production property used directly in manufacturing based in the United States, subject to strict eligibility rules.