Qualified production property gets 100 percent immediate depreciation

Unprecedented tax incentive transforms manufacturing facility investments

The One Big Beautiful Bill Act introduces a powerful new tax benefit that allows manufacturing and production businesses to immediately deduct 100% of qualifying facility costs in the year the property is placed in service. This special depreciation allowance under Section 70307 represents one of the most significant incentives for domestic production investment in recent memory.

Under traditional Depreciation and amortization rules, nonresidential real property must be depreciated over 39 years. A $10 million manufacturing facility would generate only $256,410 in annual depreciation deductions under the standard method. The new qualified production property provision eliminates this lengthy recovery period, allowing the full $10 million deduction in year one.

This transformative change targets businesses engaged in the manufacturing, production, and refining of tangible personal property. The legislation explicitly encourages domestic investment by requiring all qualifying property to be located within the United States or U.S. possessions, supporting American jobs and economic growth while delivering substantial tax savings to businesses that build production capacity on domestic soil.

The timing of this provision creates a strategic window for businesses planning facility expansions, new construction projects, or major production upgrades. Understanding the eligibility requirements, construction timelines, and coordination opportunities with other tax strategies becomes essential for maximizing the financial impact of this historic tax benefit.

Understanding the qualified production property requirements

The One Big Beautiful Bill Act establishes specific criteria that property must meet to qualify for 100% immediate depreciation. Meeting these requirements precisely determines whether your manufacturing investment generates massive first-year tax savings or follows traditional 39-year depreciation schedules.

Core eligibility requirements include:

• The property must be nonresidential real property used in the manufacturing, production, or refining of tangible personal property
• Construction must begin between January 20, 2025, and January 1, 2029
• The property must be placed in service before January 1, 2033
• The facility must be located in the United States or a U.S. possession
• The property must be original use by the taxpayer and not previously used in production activities

The legislation defines qualified production activity as requiring substantial transformation of tangible goods. This includes manufacturing automobiles, refining petroleum products, processing agricultural commodities, and producing chemical products. Service activities and intellectual property development do not qualify for this special depreciation treatment.

S Corporations and C Corporations engaged in qualifying production activities can leverage this provision to dramatically reduce their tax liability in the year facilities become operational.

Property types that qualify for immediate expensing

The One Big Beautiful Bill Act specifically targets nonresidential real property used directly in manufacturing and production operations. Understanding which facility components qualify helps businesses maximize their immediate deduction while maintaining compliance with IRS requirements.

Qualifying property categories include:

1. Manufacturing plants and production facilities where substantial transformation occurs
2. Processing facilities for agricultural, chemical, or petroleum products
3. Refineries that convert raw materials into finished goods
4. Assembly plants where components are manufactured into final products
5. Production warehouses are directly integrated with manufacturing operations

The legislation explicitly excludes certain property types from the definition of qualified production property. Office spaces, administrative service areas, lodging facilities, parking structures, sales facilities, research laboratories, and software engineering spaces do not qualify for immediate expensing under this provision.

Critical distinction for mixed-use facilities:

Businesses constructing facilities that combine production space with excluded uses must allocate costs appropriately. Only the portion of construction costs attributable to qualifying production activities can be immediately expensed. The remaining costs for administrative offices, employee amenities, and other excluded uses are depreciated under standard depreciation rules.

This allocation requirement emphasizes the importance of detailed construction cost tracking and proper documentation from project inception through completion.

Calculating your potential tax savings

The financial impact of 100% immediate depreciation for qualified production property can be substantial, potentially saving businesses millions of dollars compared to traditional 39-year depreciation schedules. Understanding these calculations helps business owners evaluate the actual value of manufacturing facility investments under the One Big Beautiful Bill Act.

Example calculation for a C Corporation:

• The manufacturing facility construction cost of $15 million
• Traditional 39-year depreciation would yield $384,615 annual deduction
• Under the new provision, the entire $15 million is deductible in year one
• At a 21% corporate tax rate, this generates $3,150,000 in first-year tax savings
• Compared to traditional depreciation, the present value advantage exceeds $2.8 million

Example calculation for an S Corporation:

• Production facility investment of $8 million
• Pass-through owner in 37% marginal tax bracket
• First-year tax savings of $2,960,000
• Traditional depreciation would provide only $205,128 in year-one deductions
• Immediate cash flow benefit of approximately $2.88 million

These calculations demonstrate why the qualified production property provision represents such a powerful incentive for domestic manufacturing investment. The ability to immediately recover facility costs through tax deductions fundamentally changes the economics of expanding production capacity.

Businesses considering Late S Corporation elections or Late C Corporation elections should evaluate how entity structure affects their ability to maximize depreciation benefits for production property.

Construction timeline requirements and planning strategies

The One Big Beautiful Bill Act establishes specific construction windows that businesses must navigate to qualify for immediate depreciation. Strategic planning around these deadlines becomes critical for maximizing tax benefits.

Key timeline milestones:

• Construction must begin on or after January 20, 2025
• Construction must commence before January 1, 2029
• Property must be placed in service before January 1, 2033
• Binding contracts establish acquisition dates rather than physical transfer

The four-year construction window creates urgency for businesses planning major facility investments. Projects that break ground before January 1, 2029, can continue construction through 2032 while still qualifying, provided they meet the placed-in-service deadline.

Businesses with multi-phase expansion plans should evaluate whether accelerating timelines captures the qualified production property benefit. The substantial tax savings may justify adjusting project schedules.

For acquired property, purchases made during 2025-2029 qualify if the facility was not used in production between 2021 and May 2025. This enables businesses to acquire idle facilities and convert them to production use while claiming immediate depreciation.

Coordination with bonus depreciation and Section 179

The qualified production property provision operates alongside other depreciation incentives in the One Big Beautiful Bill Act, creating comprehensive tax planning opportunities. Understanding how these provisions interact ensures businesses capture maximum first-year deductions.

The legislation extends 100% bonus depreciation through December 31, 2030, for machinery, equipment, and other qualifying assets. While bonus depreciation covers personal property, such as production equipment, the qualified production property provision specifically addresses real property used in manufacturing.

Coordination strategy example:

1. $12 million manufacturing facility qualifies for immediate real property depreciation
2. $4 million in production equipment qualifies for 100% bonus depreciation
3. $800,000 in qualifying vehicles and smaller equipment can utilize Section 179
4. Combined first-year deductions reach $16.8 million

This layered approach maximizes tax benefits by ensuring each asset category receives optimal treatment. Businesses investing in comprehensive production capacity can deduct their entire capital investment in year one.

Travel expenses incurred during facility construction and vendor meetings create additional deductible costs.

Industries positioned to benefit most from this provision

While any business engaged in qualifying production activities can immediately depreciate its assets, specific sectors can gain exceptional advantages from the qualified production property provision.

Manufacturing sector applications:

Automobile manufacturers, aerospace companies, and industrial equipment producers can immediately expense new assembly plants. A company building a $50 million vehicle manufacturing plant could generate $10.5 million in first-year tax savings at the 21% corporate rate.

Energy and refining opportunities:

Petroleum refineries, chemical processing plants, and biofuel production facilities qualify for immediate depreciation. The substantial capital requirements make this provision particularly valuable for companies expanding refining capacity.

Food and agricultural processing:

Companies building food processing facilities, grain elevators with processing capabilities, and agricultural refinement operations can immediately expense costs.

Pharmaceutical manufacturing:

Drug manufacturers constructing domestic production facilities gain significant advantages. The substantial transformation requirement is clearly met when raw chemicals are manufactured into finished medications.

Businesses should also explore AI-driven R&D tax credits for research activities conducted alongside production.

Recapture rules and compliance requirements

The One Big Beautiful Bill Act includes recapture provisions that businesses must understand before claiming depreciation on qualified production property. If property ceases to be used for qualifying activities within ten years, previously claimed depreciation may be subject to recapture as ordinary income.

Recapture triggers include:

• Converting production property to non-qualifying uses, such as office space
• Selling the property before the ten-year holding period expires
• Discontinuing manufacturing operations at the facility
• Leasing the property to non-production tenants

The recapture calculation follows Section 1245 rules, treating excess depreciation as ordinary income. This treatment emphasizes the importance of long-term planning when claiming immediate depreciation.

Businesses should maintain comprehensive documentation, including construction contracts showing commencement dates, evidence of placed-in-service, property-use records demonstrating production activities, and cost-allocation records for mixed-use facilities. The IRS will issue regulations clarifying terms such as "substantial transformation" and rules governing changes in property use.

Entity structure optimization for production property benefits

The choice of business entity significantly impacts how qualified production property depreciation benefits flow to business owners. Strategic entity structuring ensures maximum tax savings while maintaining operational flexibility.

C Corporation considerations:

C Corporations claim depreciation at the corporate level, reducing taxable income at the 21% flat rate. Businesses expecting to reinvest production profits may find the C Corporation structure advantageous, though distributed earnings are subject to additional shareholder taxation.

Pass-through entity benefits:

Partnerships and S Corporations pass depreciation deductions to owners, who apply them against other income. High-income owners in the 37% bracket gain larger immediate savings compared to C Corporation treatment, though they must have sufficient basis and meet passive activity requirements.

Businesses planning significant investments in production facilities should evaluate their entity structure before commencing construction to optimize tax results.

Financing strategies that preserve depreciation benefits

Manufacturing facility investments often require significant financing, raising questions about how debt structures interact with depreciation for qualified production property. The One Big Beautiful Bill Act preserves depreciation benefits regardless of financing method, creating flexibility for capital-intensive production investments.

Key financing considerations:

1. Depreciation deductions are based on the full property cost, regardless of the down payment amount
2. Interest expenses on construction loans create additional deductible costs
3. Refinancing existing production facilities does not affect depreciation treatment
4. Sale-leaseback arrangements may disqualify property from qualified production treatment

Businesses can leverage financing to acquire production facilities while still claiming full immediate depreciation. A company that finances 80% of a $20 million facility can deduct the entire amount in year one while managing cash flow through structured debt payments.

Vehicle expenses for specialized production vehicles and Meals deductions during facility construction planning provide additional tax benefits.

State tax implications and planning opportunities

While the One Big Beautiful Bill Act addresses federal taxation, businesses should consider how state tax laws interact with depreciation for qualified production property. State conformity to federal depreciation rules varies significantly.

Conforming state benefits:

States that automatically adopt federal depreciation provisions will generally allow immediate expensing for state tax purposes. This conformity magnifies total tax savings by applying the deduction against both federal and state liability.

Non-conforming state considerations:

Some states maintain separate depreciation schedules. Businesses in non-conforming states may claim full, immediate federal depreciation while complying with state requirements, creating timing differences.

Companies with multi-state operations must evaluate combined tax impacts. The 2025 California State Tax Deadlines and 2025 Texas State Tax Deadlines represent examples of state-specific considerations affecting production facility decisions.

Maximize your manufacturing investment starting now

The One Big Beautiful Bill Act's qualified production property provision creates an unprecedented opportunity for manufacturing and production businesses to recover facility investment costs through tax deductions. With construction commencement required before January 1, 2029, and placed-in-service deadlines extending to 2033, companies have a defined window to capture these substantial tax benefits.

Instead's comprehensive tax platform helps manufacturing businesses navigate qualified production property requirements, calculate potential savings, and coordinate depreciation strategies with other valuable tax provisions. Our intelligent system ensures you capture every available deduction while maintaining full compliance with IRS requirements.

Explore Instead's pricing plans to discover how our platform can help you maximize depreciation benefits for production property and build a comprehensive tax strategy to support your manufacturing growth.

Frequently asked questions

Q: What types of facilities qualify for 100% immediate depreciation under the One Big Beautiful Bill Act?

A: Qualifying facilities include manufacturing plants, processing facilities, refineries, and assembly operations where substantial transformation of tangible goods occurs. The property must be nonresidential real property located in the United States and used directly in production activities.

Q: When must construction begin to qualify for the qualified production property benefit?

A: Construction must commence between January 20, 2025, and January 1, 2029. Projects can continue beyond 2029 as long as they break ground within this window and property is placed in service before January 1, 2033.

Q: How does qualified production property depreciation interact with bonus depreciation?

A: These provisions complement each other. Qualified production property depreciation applies to nonresidential real property, while bonus depreciation covers production equipment. Businesses can claim both benefits by properly categorizing facility costs rather than equipment costs.

Q: What happens if I sell qualified production property before ten years?

A: The One Big Beautiful Bill Act includes recapture rules requiring recognition of previously claimed depreciation as ordinary income under Section 1245 if property is sold or converted to non-production use within ten years.

Q: Can I claim immediate depreciation on an acquired manufacturing facility?

A: Yes, acquired property qualifies if purchased during 2025-2029, and the facility was not used in production between 2021 and May 2025. This enables the acquisition and conversion of idle facilities.

Q: Does financing affect my ability to claim qualified production property depreciation?

A: No, financing arrangements do not affect eligibility. Businesses can claim the full immediate deduction based on the total property cost, regardless of financing method.