Section 168(n), added by Public Law 119-21, allows a 100% deduction for a nonresidential building used as an integral part of manufacturing, production or refining, if construction begins after 19 January 2025 and before 1 January 2029 and the building is placed in service after 4 July 2025 and before 1 January 2031. Offices, sales, research and lodging space are excluded, the election is made on the original return, and a change of use within ten years is recaptured.
Section 168(n) lets a manufacturer expense a building.
Public Law 119-21, section 70307, added section 168(n): an elective 100% special depreciation allowance for qualified production property, which is nonresidential real property that the taxpayer uses as an integral part of a qualified production activity. Buildings have never qualified for bonus depreciation, because their recovery period exceeds 20 years; this provision is the exception, and it is narrow. Notice 2026-16 gives the interim rules the forthcoming regulations are expected to follow.
Seven requirements, from the notice.
- Nonresidential real property, placed in service in the United States or a territory.
- Used by the taxpayer as an integral part of a qualified production activity: manufacturing, production or refining of tangible personal property that results in a substantial transformation. Property used by a lessee does not count as the lessor's use.
- Original use begins with the taxpayer, with a rule for used property acquired after 19 January 2025 and before 1 January 2029 that nobody used in a qualified production activity between 1 January 2021 and 12 May 2025.
- Construction begins after 19 January 2025 and before 1 January 2029.
- Placed in service after 4 July 2025 and before 1 January 2031.
- Designated in an election made on the timely filed original return, including extensions, for the placed-in-service year. The election cannot be made late.
- Not used for the excluded functions: offices, administrative services, lodging, parking, sales, research, software development or engineering, and anything else unrelated to manufacturing, production or refining. Basis is allocated between qualifying and excluded space by a reasonable method such as floor area; if 95% or more of the space qualifies, the taxpayer may elect to treat the whole property as qualifying.
| Component of the $12,000,000 plant | Use | Basis | Treatment | Year-1 deduction |
|---|---|---|---|---|
| Production floor, receiving, raw material storage, quality | Integral to the qualified production activity | 11,040,000.00 | Section 168(n) election, 100% special allowance | 11,040,000.00 |
| Offices, sales area, employee lodging | Excluded functions | 960,000.00 | 39-year straight line, mid-month (placed in service in June) | 13,344.62 |
| Total | 12,000,000.00 | 11,053,344.62 | ||
Ten years of recapture, and a state book that may differ.
If within ten years of being placed in service the property stops being used as an integral part of a qualified production activity and is used in another productive use, section 168(n)(5) treats it as disposed of and section 1245 recaptures the allowance as ordinary income. The register has to carry the placed-in-service date, the election, the qualifying share, and a reminder that a change of use before the ten years are up is a taxable event. Delaware and the District of Columbia decoupled from section 168(n) in late 2025, so the state book for a plant there depreciates the building over 39 years while the federal book expenses it. For a manufacturer the interaction with construction in progress is direct: the project accumulates cost until the building is placed in service, and the election is made for that year; the construction in progress article covers the capitalisation.
| When | User | Record | Field | Before | After | Reason |
|---|---|---|---|---|---|---|
| 30 Sep 2026 16:41 | M. Reyes | Period | Period 9 | Open | Depreciation posted | Mass recalculation, 1,203 assets |
| 12 Sep 2026 14:02 | M. Reyes | 10577 | Status | In service | Disposed, sale | Replaced by unit 9 |
| 12 Sep 2026 13:55 | M. Reyes | CIP-0155 | Status | In progress | Capitalised as 10744 | Dock doors in service |
| 10 Sep 2026 09:18 | J. Okafor | 10412 | Federal convention | Half-year | Half-year (re-tested) | 40% rule check, Q3 |
| 03 Sep 2026 11:30 | Import | 27 assets | Created | From AP export 88213 to 88266 | Additions queue approved by J. Okafor | |
| 29 Aug 2026 15:07 | K. Lindqvist | 10240 | Cost | 9,600.00 | 9,840.00 | Freight added, invoice 88266 |
What to record on the asset.
- The date construction began and the date placed in service, against the two windows.
- The qualifying share of floor area and the allocation method, or the 95% election.
- The election, made on the original return for the placed-in-service year.
- The ten-year change-in-use date and the use at each year-end.
- The state treatment separately, since Delaware and the District of Columbia have decoupled.
In Fixed Asset Desk: a qualified-production-property flag on 39-year property with the placed-in-service window validated, applied in the 2025 tax-table update; the manufacturing page shows the project-to-asset step.
Sources: Internal Revenue Code section 168(n), added by Public Law 119-21, section 70307; Notice 2026-16 (interim guidance on qualified production property), sections 3 to 8; Grant Thornton, State decoupling from OBBBA likely to continue into 2026 (9 December 2025). Checked 20 September 2026.