Manufacturing property gets 100% bonus depreciation

Revolutionary production property deduction transforms American manufacturing

The One Big Beautiful Bill Act delivers unprecedented tax relief for American manufacturers through a groundbreaking 100% immediate depreciation deduction for qualified production property. This historic legislation allows businesses to deduct the entire cost of eligible manufacturing facilities in the year they're placed in service, rather than depreciating them over 39 years under traditional rules.

These enhanced deduction provisions represent the most significant manufacturing tax incentive in recent history. Under the new rules, businesses constructing qualifying production facilities between January 20, 2025, and January 1, 2029, can immediately write off 100% of their investment, resulting in immediate cash flow benefits and substantial reductions in current-year tax liability that can exceed $20 million for major projects.

The timing of these changes aligns perfectly with America's goals for its manufacturing renaissance. By allowing businesses to immediately deduct qualifying property investments, the One Big Beautiful Bill Act encourages domestic production expansion, job creation, and industrial modernization across all manufacturing sectors while delivering transformational tax savings to businesses that expand their production capacity.

Understanding how these enhanced depreciation rules work and calculating your potential savings becomes essential for maximizing the financial impact of this transformative legislation. With proper planning and strategic timing, eligible manufacturers can reduce their annual tax liability by millions of dollars while accelerating their growth and competitiveness in the global marketplace.

Understanding qualified production property requirements

The One Big Beautiful Bill Act establishes specific criteria that manufacturing facilities must meet to qualify for 100% immediate depreciation treatment. These requirements ensure the benefits target genuine production expansion while preventing abuse of the enhanced depreciation provisions.

Key qualification requirements for production property include:

• Construction must commence between January 19, 2025, and January 1, 2029
• Property must be placed in service before January 1, 2031
• The facility must be located in the United States or a U.S. possession
• Property must generally be new to the taxpayer (original use begins with the taxpayer) or satisfy the special rules for specific previously owned property
• The facility must be used as an integral part of the manufacturing, production, or refining of tangible personal property (a "qualified production activity")

The legislation requires explicitly that qualifying property consist of nonresidential real property used directly in production activities. This includes manufacturing plants, production facilities, refining operations, and related structures that house equipment used to transform raw materials into finished goods through substantial production processes.

Excluded property categories that do not qualify for enhanced treatment include office spaces, administrative facilities, lodging accommodations, parking structures, sales facilities, research facilities, software engineering operations, and activities unrelated to direct manufacturing or production processes.

Calculating massive tax savings under the new legislation

Your potential tax savings under the enhanced production property depreciation depend on the size of your facility investment, your tax bracket, and your overall business structure. The One Big Beautiful Bill Act allows eligible manufacturers to deduct qualifying property, creating unprecedented cash flow benefits immediately.

Example calculation for manufacturing expansion:

1. New production facility investment: $60 million
2. Business tax rate: 21% (C Corporation)
3. Immediate depreciation deduction: $60 million (100% of cost)
4. First-year tax savings: $60 million × 21% = $12.6 million

Example calculation for refining operation:

1. New refining facility investment: $85 million
2. Owner's marginal tax rate: 37% (pass-through entity)
3. Immediate depreciation deduction: $85 million
4. First-year tax savings: $85 million × 37% = $31.45 million

For businesses that maximize the enhanced depreciation provisions, first-year tax savings can range from $12.6 million for a $60 million C Corporation facility to over $31 million for significant investments in pass-through entities. These calculations demonstrate the extraordinary cash flow impact this provision creates for businesses expanding their domestic production capacity.

Strategic timing considerations:

• Construction commencement dates must fall within the January 20, 2025, to January 1, 2029 window
• Property must be placed in service by January 1, 2033, to qualify
• Binding contracts signed before January 20, 2025, may affect qualification timing
• Coordination with other Depreciation and amortization strategies maximizes the total

The substantial transformation requirement defines qualifying activities

The One Big Beautiful Bill Act requires that qualifying production property be used in activities involving substantial transformation of tangible goods. Understanding this requirement ensures your facility qualifies while maintaining compliance with IRS regulations governing the enhanced depreciation treatment.

Qualifying production activities include:

• Manufacturing automobiles, aircraft, machinery, and equipment from parts
• Refining petroleum, chemicals, or other raw materials into finished products
• Processing agricultural products into packaged goods through substantial transformation
• Fabricating metal products from raw materials through multiple production stages
• Producing pharmaceuticals, medical devices, and biotechnology products through complex manufacturing

The substantial transformation requirement distinguishes qualifying production activities from simple assembly, packaging, or distribution operations that do not involve significant manufacturing processes. Facilities must transform raw materials or components into substantially different products through multiple production stages to qualify for the enhanced depreciation benefits.

Activities that do not qualify under the substantial transformation requirement include simple assembly operations, repackaging, distribution and warehousing, intellectual property development, software engineering, and service-based operations that do not involve the direct manufacturing of tangible personal property.

Special rules for acquired production facilities

The One Big Beautiful Bill Act includes specific provisions for businesses acquiring existing production facilities during the construction window period. These rules enable qualification for facilities not initially constructed by the current owner, thereby expanding the scope of eligible investments.

Acquired property qualification requirements:

1. Property must be purchased during the January 20, 2025, to January 1, 2029 construction window
2. The facility must not have been used in production activities between January 1, 2021, and May 31, 2025
3. The binding contract date determines acquisition timing for qualification purposes
4. Property must still be placed in service by January 1, 2033 deadline

These special acquisition rules enable businesses to qualify for 100% immediate depreciation even when purchasing facilities from other owners, provided the property meets the non-use requirements during the specified exclusion period. This flexibility encourages acquisition and reactivation of dormant manufacturing capacity.

Strategic acquisition planning allows businesses to identify shuttered or underutilized production facilities that meet the qualification requirements, acquire them during the construction window, modernize and upgrade the operations, and immediately deduct 100% of their investment, thereby supporting the revival of American manufacturing.

Coordination with other business deductions multiplies benefits

The enhanced production property depreciation creates powerful opportunities for coordination with other valuable business tax strategies under the One Big Beautiful Bill Act. This comprehensive approach ensures manufacturers capture every available tax benefit while building long-term operational strength.

Coordination with Section 179 expensing allows businesses to maximize total first-year deductions. While production property buildings generally don't qualify for Section 179 treatment, businesses can coordinate the 100% depreciation of production property with Section 179 deductions for qualifying equipment, machinery, and Vehicle expenses used within the facility, thereby maximizing total first-year deductions.

R&D credit synergies create additional savings opportunities. The One Big Beautiful Bill Act enhances AI-driven R&D tax credits by making domestic research and development expenses immediately deductible. Manufacturers can combine production property depreciation with R&D expensing for technology development facilities, creating comprehensive tax-advantaged expansion strategies.

Employee benefit coordination strengthens workforce development. Enhanced Employee achievement awards programs can be strategically implemented alongside facility expansions. Production property investments that create jobs can be coordinated with recognition programs and the Work opportunity tax credit to maximize total tax benefits.

Recapture provisions protect against non-qualifying use

The One Big Beautiful Bill Act includes important recapture provisions that businesses must understand to maintain compliance with the enhanced depreciation rules. These provisions ensure qualifying property continues to serve its intended production purpose throughout the required holding period.

Ten-year recapture period requirements:

• Property must remain in qualified production use during the 10 years beginning on the date it is placed in service; if it ceases to be used in a qualified production activity at any time in that 10-year window, recapture can apply
• Converting property to a non-qualifying use (or otherwise failing the QPP eligibility tests) within those 10 years triggers depreciation recapture that is treated as ordinary income
• Recapture amounts are calculated under Section 1245 depreciation recapture rules, because QPP is expressly treated as Section 1245 property for this purpose
• Basis and future depreciation are adjusted to reflect the recaptured amount, so previously claimed deductions that are "clawed back" become ordinary income, and the adjusted basis is increased accordingly

Example recapture calculation:

1. Original production facility investment: $50 million
2. 100% immediate depreciation claimed: $50 million
3. Year 6: Facility converted to office and administrative use (non-qualifying)
4. Recapture amount: $50 million (full depreciation claimed)
5. Additional ordinary income: $50 million in the year of conversion
6. Additional tax liability at 21% corporate rate: $10.5 million

These recapture provisions create strong incentives to maintain qualifying production use over the ten years. Businesses should carefully evaluate their long-term operational plans before claiming the enhanced depreciation benefits to avoid unexpected future tax liability.

Transfer and disposition rules require careful planning. Property transfers to related parties or dispositions to unrelated parties may trigger recapture events under certain circumstances. The IRS will issue regulations clarifying how recapture applies in various transfer scenarios, providing guidance for merger, acquisition, and corporate restructuring transactions.

Entity structure optimization maximizes production property benefits

Different business entity structures can leverage the enhanced production property depreciation differently under the One Big Beautiful Bill Act. Understanding how these benefits flow through various entity types helps manufacturers optimize their tax planning strategies.

Pass-through entity advantages create substantial benefits for business owners. S Corporations and Partnership structures pass through production property depreciation deductions to owners, who can deduct them on their individual tax returns. This creates opportunities for high-income business owners to reduce their overall tax liability substantially through significant manufacturing investments.

C Corporations strategies offer different optimization approaches. C Corporations can utilize enhanced depreciation for production property to reduce corporate tax liability at the 21% rate, potentially coordinating with dividend strategies and owner compensation approaches to optimize overall tax efficiency at both the corporate and individual levels.

Entity election timing requires careful evaluation. Businesses considering Late S Corporation elections or Late C Corporation elections should carefully evaluate how the enhanced production property depreciation affects their optimal entity structure choice before commencing construction on qualifying facilities.

Industry-specific applications create competitive advantages

The enhanced depreciation for production property under the One Big Beautiful Bill Act creates particular advantages for specific manufacturing sectors and production operations. Understanding industry-specific applications helps businesses identify optimal investment opportunities.

Automotive and transportation equipment manufacturing benefits substantially from combined incentives. Vehicle manufacturers can immediately deduct production facility investments while coordinating with Clean vehicle credit benefits for electric vehicle production lines. These combined incentives support the expansion of domestic automotive manufacturing and the production of clean energy vehicles.

Chemical and pharmaceutical production qualifies for comprehensive benefits. Refining and chemical production facilities qualify for 100% immediate depreciation, creating substantial benefits for businesses expanding domestic pharmaceutical manufacturing, chemical processing operations, and biotechnology production capacity during the qualification window.

Food and agricultural processing supports domestic production goals. Agricultural processors can leverage enhanced depreciation for facilities that substantially transform farm products into packaged consumer goods, supporting domestic food production capacity while qualifying for immediate tax benefits on production facility investments.

Documentation requirements ensure compliance and maximize benefits

The enhanced production property depreciation under the One Big Beautiful Bill Act requires meticulous documentation to ensure full compliance with IRS requirements while maximizing available deductions. Proper record-keeping becomes even more critical with the substantial deduction amounts available.

Essential documentation requirements:

• Construction commencement documentation proving start dates fall within the qualification window
• Placed-in-service records establishing when facilities became operational
• Property use records demonstrating qualifying production activities throughout the recapture period
• Original use certifications confirming the property is new to the taxpayer
• Acquisition documentation, including binding contract dates for purchased facilities

Compliance considerations for manufacturers:

1. Production property elections must be made by the tax return due date, including extensions
2. Ten-year recapture provisions require ongoing monitoring of property use
3. IRS regulations will clarify substantial transformation standards and documentation requirements
4. Multi-facility manufacturers must track qualification status separately for each location

The IRS will issue comprehensive regulations providing additional guidance on the substantial transformation requirement, property qualification standards, recapture calculations, and documentation requirements. Manufacturers should collaborate with qualified tax professionals to ensure their documentation complies with all relevant regulatory requirements.

Multi-year planning strategies optimize long-term benefits

The One Big Beautiful Bill Act's construction window creates valuable opportunities for manufacturers to implement multi-year facility expansion strategies that maximize total tax benefits across multiple production sites and business units.

Phased expansion strategies:

• Year 1: Commence construction on primary production facility during qualification window
• Year 2: Complete and place primary facility in service, claim 100% depreciation
• Year 3: Begin construction on secondary production line or complementary facility
• Year 4: Complete secondary facility, claim additional 100% depreciation benefits

This phased approach enables manufacturers to spread their capital investments over multiple years while maintaining qualification for each facility. The January 1, 2029, construction commencement deadline and the January 1, 2033, placed-in-service deadline provide sufficient time for implementing comprehensive, multi-facility expansion strategies.

Geographic diversification opportunities allow strategic facility placement. Manufacturers can identify optimal locations for new production facilities, considering state and local tax incentives, workforce availability, logistics advantages, and access to raw materials while qualifying each facility for 100% federal depreciation benefits under the new legislation.

Financing strategies coordinate with depreciation benefits

The enhanced production property depreciation creates unique opportunities for coordinating facility financing with tax benefit timing under the One Big Beautiful Bill Act. Understanding these coordination opportunities helps manufacturers optimize their capital structure and cash flow management.

Debt financing coordination aligns payments with tax savings. Production facility debt financing can be structured to align principal and interest payments with the substantial first-year tax savings from 100% depreciation. The immediate tax benefits generate cash that can support debt service requirements while maintaining a strong balance sheet.

Equity financing alternatives reduce dependence on debt. Manufacturers can leverage substantial first-year tax benefits to support equity contributions for production facility investments, thereby reducing their dependence on debt financing while maintaining strong financial flexibility for ongoing operations and future expansion opportunities.

Tax-advantaged wealth building combines multiple strategies. Business owners can redirect tax savings from production property depreciation into Traditional 401k and Roth 401k contributions, creating comprehensive wealth-building strategies that combine immediate tax benefits with long-term retirement security.

State tax coordination enhances overall manufacturing benefits

While the One Big Beautiful Bill Act addresses federal taxation, manufacturers should consider how state tax laws interact with the enhanced depreciation provisions for production property. Many states conform to federal tax law changes, potentially extending enhanced depreciation benefits to state income taxes as well.

Conforming state benefits multiply federal savings. States that automatically adopt federal tax law changes generally allow 100% depreciation for production property for state tax purposes. This creates additional tax savings beyond the federal benefits, substantially increasing the total financial impact of qualifying facility investments.

Non-conforming state planning requires careful coordination. Some states maintain separate depreciation rules or require separate elections for the treatment of production property. Manufacturers operating in multiple states should evaluate the combined federal and state tax benefits when planning facility locations and structuring their investments to optimize their tax strategies.

Multi-state manufacturing coordination optimizes total benefits. Businesses with production operations in multiple states can optimize facility locations to maximize combined federal and state tax benefits while considering workforce availability, logistics advantages, and proximity to customers and suppliers.

Transform your manufacturing operations starting in 2025

Don't miss out on the unprecedented tax savings available through the One Big Beautiful Bill Act's 100% immediate depreciation for qualified production property. Starting with construction commenced after January 19, 2025, eligible manufacturers can claim immediate deductions for the entire facility investments, resulting in millions of dollars in tax savings while accelerating American manufacturing expansion.

Instead's comprehensive tax platform makes it simple to track your qualifying production property investments, calculate your available depreciation deductions, and ensure full compliance with the enhanced depreciation requirements. Our intelligent system automatically identifies optimization opportunities and helps you coordinate production property benefits with other valuable manufacturing tax strategies under the new legislation.

Get started with Instead today to maximize your production property depreciation benefits while building a comprehensive tax strategy that supports your manufacturing expansion and long-term business success. Explore our pricing plans to find the solution that fits your manufacturing business needs.

Frequently asked questions

Q: How much can my manufacturing business save annually with 100% production property depreciation?

A: Your savings depend on your facility investment size and tax rate. A $60 million production facility generates $12.6 million in first-year tax savings for C Corporations (21% rate) or up to $22.2 million for pass-through entities with owners in the top 37% bracket. Most manufacturers save between $5 million and $25 million on major facility expansions.

Q: Does acquired production property qualify for 100% immediate depreciation?

A: Yes, acquired facilities can qualify provided they were purchased during the January 20, 2025, to January 1, 2029, construction window and were not used in production activities between January 1, 2021, and May 31, 2025. The property must still be placed in service by January 1, 2033, to qualify for the enhanced depreciation treatment.

Q: What happens if I convert my production facility to non-qualifying use within ten years?

A: Converting property to non-qualifying use within ten years triggers depreciation recapture under Section 1245 rules. You'll recognize the entire depreciation previously claimed as ordinary income in the year of conversion, resulting in substantial additional tax liability. For a $50 million facility, this could mean $10.5 million in extra taxes for a C Corporation.

Q: Can I coordinate production property depreciation with Section 179 expensing?

A: While production property buildings generally don't qualify for Section 179 treatment, you can coordinate the 100% production property depreciation with Section 179 deductions for qualifying equipment, machinery, and vehicles used within the facility. This coordination can result in comprehensive first-year deductions that maximize total tax benefits.

Q: What qualifies as a substantial transformation for production property purposes?

A: Substantial transformation requires multiple manufacturing stages that convert raw materials or components into significantly different finished products. Examples include automobile manufacturing, petroleum refining, pharmaceutical production, and metal fabrication. Simple assembly, repackaging, or distribution operations typically don't constitute substantial transformation.

Q: How do state taxes interact with the federal production property depreciation?

A: Many states conform to federal tax law changes and will allow the 100% production property depreciation for state tax purposes, creating additional savings beyond federal benefits. However, some states maintain separate depreciation rules requiring careful coordination. Multi-state manufacturers should evaluate the combined benefits of federal and state regulations when planning facility locations.

Q: Can I claim production property depreciation if construction started before 2025?

A: Generally, no. To qualify for the 100% immediate depreciation on qualified production property, construction must begin after January 19, 2025, and before January 1, 2029. Property covered by a written binding contract entered into before January 20, 2025, is generally excluded from the new 100% production-property deduction and instead falls under the transitional bonus depreciation rules. The placed-in-service deadline for qualified production property is January 1, 2031, not 2033.