IRS guidance clarifies 100% bonus depreciation opportunity for manufacturers and producers
A major new federal tax incentive is creating significant opportunities for U.S. manufacturers, producers, and refiners by allowing immediate expensing of certain production facilities. Under recently enacted legislation, taxpayers may now be eligible to fully deduct the cost of qualifying production buildings in the year they are placed in service, rather than depreciating those costs over the traditional 39-year period. The Internal Revenue Service has issued interim guidance outlining how the provision applies and who can benefit.
A Shift in How Facilities Are Taxed
The new rule, introduced under Internal Revenue Code Section 168(n), applies to what is defined as Qualified Production Property (QPP). This generally includes new or expanded nonresidential buildings used directly in production activities such as manufacturing, agriculture, chemical production, and refining.
To qualify, construction must typically begin after January 19, 2025. The property must be placed in service between July 5, 2025, and December 31, 2030, and must be located within the United States or any possession of the United States.
What Counts as a Qualified Activity
The IRS defines qualifying production as activities that involve substantial transformation of goods, such as turning raw materials into finished products.
Certain supporting functions may also qualify if they occur at the same site. These include raw material storage, production oversight, and quality control. However, office space, administrative functions, research and development, sales activities, and similar uses are excluded from eligibility.
Safe Harbor Simplifies Early Adoption
To help businesses adopt the new rules more quickly, the IRS introduced a temporary safe harbor.
For property placed in service between July 5, 2025, and January 1, 2026, a taxpayer’s activity is treated as a qualified production activity if its business falls within a specified NAICS code and the activity results in a substantial transformation of a product. This provision reduces uncertainty and simplifies early implementation for eligible businesses.
Flexibility for Partial Use and Existing Property
The guidance also allows companies to claim the benefit even if only part of a building is used for qualifying production. Businesses can allocate costs using reasonable methods such as square footage or construction costs.
In addition, certain previously used properties may qualify if they meet specific requirements. Special rules also apply to leased property and related-party structures, which may expand planning opportunities for larger organizations.
Significant Cash Flow Opportunity
This provision represents a major shift in tax treatment for production facilities. Because commercial buildings are typically depreciated over decades, the ability to expense qualifying property immediately can significantly accelerate tax deductions and improve cash flow.
However, the benefit is not automatic. Taxpayers must make an affirmative election and ensure proper documentation and compliance with IRS requirements.
About SingerLewak
SingerLewak’s Tax Advisory Group works with businesses across industries to identify and implement tax strategies that improve cash flow and support long-term growth. With deep experience in federal tax incentives and complex planning, the firm helps clients evaluate eligibility, structure investments, and maximize available benefits under evolving tax law.
Businesses planning new or expanded production facilities are encouraged to consult with SingerLewak early in the process to fully capture available tax advantages.
To learn more, contact SingerLewak’s Tax Advisory Group or visit www.singerlewak.com.
