On February 20, 2026, the U.S. Department of the Treasury and the IRS released Notice 2026-16. The guidance introduces a new 100 percent depreciation deduction for qualified production property under Internal Revenue Code Section 168(n).
For decades, nonresidential real property has been recovered over 39 years. This new provision allows certain production facilities to be fully expensed in the year they are placed in service, provided specific timing and use requirements are met.
For CPAs, tax attorneys, and production-focused businesses, this is more than a technical update. It is a c opportunity that can accelerate deductions, improve cash flow, and materially influence investment decisions before the 2031 deadline.
Historically, nonresidential real property has been subject to a 39-year recovery period under MACRS. Even with bonus depreciation under Section 168(k), production buildings were generally excluded from immediate expensing.
Section 168(n) changes that. Enacted under the One Big Beautiful Bill Act, it allows taxpayers to deduct up to 100 percent of the adjusted basis of certain production-related real estate in the year it is placed in service.
This is not a minor tweak. It is a fundamental shift in how qualifying production facilities may be recovered for tax purposes.
To qualify, property must:
Qualified production activities generally involve the substantial transformation of tangible property into a new product. Manufacturing, refining, chemical production, and certain agricultural processing typically qualify. Warehousing, distribution, office, and retail space do not.
Once the taxpayer makes the required election, up to 100 percent of the adjusted basis of the qualified production property may be deducted in the year the property is placed in service.
Instead of spreading the cost of a production facility over nearly four decades, the entire amount may be expensed immediately. This can significantly reduce taxable income in the first year and improve project cash flow.
However, acceleration comes with responsibility. If the property later ceases to be used in a qualified production activity, recapture rules may require inclusion of previously deducted amounts in income.
The placed-in-service window closes January 1, 2031. Construction delays or operational setbacks could push a project outside eligibility.
Advisors should review capital expenditure plans now. Projects in early stages may require timeline adjustments to secure qualification.
Section 168(n) treatment is not automatic. A formal election must accompany the timely filed return for the year the property is placed in service.
Missed elections or incomplete statements could forfeit the benefit. Firms should implement internal review procedures to flag eligible property before filing deadlines.
Federal acceleration may not mirror state treatment. Some states may decouple from this provision.
Advisors should run multi-year projections that account for federal savings, state differences, future taxable income, and financing considerations.
If property use changes, recapture may apply. Businesses should document how facilities are used and maintain internal compliance controls.
For firms advising multiple production-based clients, tracking evolving IRS guidance manually can be inefficient. Platforms like Bizora AI allow tax professionals to monitor updates such as Section 168(n), quickly identify affected clients, and translate technical developments into planning conversations without hours of research.
The 100 percent depreciation deduction for qualified production property is one of the most significant production-focused tax incentives currently available.
For businesses expanding or modernizing facilities, this provision can materially improve short-term cash flow and overall project returns. For tax professionals, it creates an opportunity to provide proactive advisory value rather than reactive compliance work.
Firms that identify eligible projects early and structure elections correctly will deliver measurable financial impact to their clients.
Nonresidential real property used as an integral part of a qualified production activity may qualify if it meets construction, original use, and placed-in-service requirements.
No. Taxpayers must affirmatively elect qualified production property treatment on a timely filed return.
No. Original use must begin with the taxpayer.
Activities involving the substantial transformation of tangible property into a new product, including manufacturing, refining, chemical production, and certain agricultural processing.
If the property ceases to be used in a qualified production activity, previously deducted amounts may need to be included in income.