New IRS Guidance on Special Depreciation Allowance for Qualified Production Property Under the One Big Beautiful Bill

The Department of the Treasury and Internal Revenue Service (IRS) recently released interim guidance on the special depreciation allowance for qualified production property, a key tax benefit introduced by the One Big Beautiful Bill (OBBB). This guidance is essential reading for tax professionals advising businesses on depreciation planning and asset write-offs for property placed in service after mid-2025.

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What Tax Preparers Need to Know

The IRS issued Notice 2026-16, which provides interim guidance on the special depreciation allowance available under the new qualified production property rules of Internal Revenue Code Section 168(n). This allowance lets taxpayers elect to claim up to 100% depreciation deduction on qualified production property placed in service in a given tax year.

Key Provisions of the Guidance

100% Special Depreciation Allowance Eligibility ​

Under the One Big Beautiful Bill, a taxpayer may claim a 100% special depreciation allowance for qualified production property placed in service:

  • After July 4, 2025

  • Before January 1, 2031

This rule allows businesses to fully expense qualified production assets in the year placed in service, accelerating deductions and improving cash flow.

Definition of Qualified Production Property

“Qualified production property” generally refers to nonresidential real property used as an integral part of a qualified production activity, such as manufacturing, chemical production, refining, or agricultural activities that substantially transform property into a finished product.

Tax preparers should note that this depreciation treatment is elective — taxpayers must make an election to treat eligible property as qualified production property.

Interim Guidance Topics Covered

The interim guidance in Notice 2026-16 helps preparers understand:

  • How to identify qualified production property and qualified production activities
  • How to calculate the special depreciation allowance
  • When and how to make the election to apply the allowance

  • How depreciation recapture rules may apply if property no longer qualifies

Until final regulations are published, taxpayers may rely on this interim guidance when preparing returns.

Proposed Regulations on the Horizon

The Treasury and IRS also announced that they will issue proposed regulations to formalize and expand on the interim guidance. They’ve invited comments from practitioners and stakeholders on complex issues and areas where further clarity is needed. Comments are due within 60 days of the notice issuance.

Why This Matters for Tax Preparers

This new special depreciation allowance represents a significant tax planning opportunity for businesses that invest in large facility projects, manufacturing expansions, or other qualifying production operations:

  • It accelerates depreciation deductions — potentially reducing taxable income in early years
  • It applies to certain real property that historically was depreciated over long lives
  • It encourages investment in U.S. production assets

For clients with qualifying production assets placed in service during the covered period, this interim guidance and forthcoming regulations will be critical in preparing accurate, optimized returns.

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