The Internal Revenue Service has issued new guidance explaining how businesses can claim up to a 100 percent depreciation deduction for certain production facilities. This benefit was created under a new tax law known as the One Big Beautiful Bill, or OBBB, but many details were unclear until now.
The guidance is included in Notice 2026-16, released jointly by the United States Department of the Treasury and the IRS. It explains how companies can use the new tax break immediately, even before final regulations are issued.
What the new tax break allows?
Under the new rule, businesses can deduct up to 100 percent of the cost of certain eligible property in the same year the property is placed in service. This means companies can write off the full value of qualifying production buildings instead of spreading the deduction over many years.
The deduction applies to “qualified production property.” In simple terms, this generally means non-residential real estate, such as factory buildings, that is used as an important part of a production activity.
What counts as qualified production
The guidance explains that qualified production activities include manufacturing, chemical production, agricultural production, and refining.
These activities must result in a substantial transformation of a product. In other words, the process must significantly change the product being made. The property must be directly connected to these activities to qualify for the tax break.
Time limits and election requirement
The IRS makes clear that the property must be placed in service after July 4, 2025, and before January 1, 2031. If it is placed in service outside this time frame, the special 100 percent deduction will not apply. Businesses must also actively choose to use this benefit. The deduction is not automatic. Taxpayers must elect to treat their property as qualified production property.
How the deduction works
Notice 2026-16 explains how to calculate the deduction and how to treat properties that are partly used for production and partly for other purposes. It also covers situations involving related parties. The guidance warns that if a property later stops qualifying, businesses may have to repay some of the tax benefit through depreciation recapture.
Public comments and future rules
The Treasury Department and the IRS said taxpayers can rely on this interim guidance right away. However, they plan to issue proposed regulations that will provide more detailed rules.
The agencies are asking for public comments before finalizing those regulations. Stakeholders will have 60 days from the date the notice was issued to submit their views.
With this guidance, the IRS has clarified how businesses can use the new production incentive and what steps they must follow to claim the full 100 percent write-off.