100% Bonus Depreciation on Production Property

A recent change from the One Big Beautiful Bill Act (OBBBA) brings big news for business owners involved in manufacturing or production. A new category, “qualified production property”, is now eligible for 100% bonus depreciation. Before this change, these types of assets had to be depreciated over 39 years and didn’t qualify for bonus depreciation under section 168(k). This update could mean major tax savings, but it’s important to understand the IRS rules to make sure you qualify.

What Counts as Qualified Production Property?
Under section 168(n), this includes parts of nonresidential buildings in the U.S. that are used directly in a qualified production activity and the property must be new to the taxpayer. Qualified production activities include things like manufacturing, agriculture, chemical production, and refining.

However, not everything qualifies. Leased property is excluded, and so are areas of a building used for office work, lodging, sales, parking, research, and similar purposes. Because of this, businesses may want to consider a cost segregation study to pinpoint which areas of their property do qualify for the new deduction.

Key Dates to Know

• Construction must begin after January 19, 2025, and before January 1, 2029.
• The property must be placed in service before January 1, 2031.
• Property purchased under a binding contract counts as acquired on the date the contract is signed.
• For self-constructed property, taxpayers will need to closely track expenses and progress until the IRS provides more clarity on how to determine when construction officially begins.

Bottom Line: If businesses can time their construction and placed-in-service dates correctly, this new rule could provide meaningful cash-flow and tax benefits. Now is the time to start planning with your HFCO tax professional, we are here to turn complexity into clarity.