Understanding 100 Percent Depreciation for Production Property: A Smart Move for Start-Up Success
💡 What Is Accelerated Depreciation?
When you start a business, you’ll likely invest in assets like computers, machinery, office furniture, or even vehicles. Traditionally, businesses spread out (“depreciate”) the cost of these assets over several years for financial reporting. But for tax filing, accelerated 100 percent depreciation lets you write off the full value of qualifying assets right away—often in the same year you buy them. One of the provisions of the One Bill Beautiful Bill Act (OBBBA) provides this benefit for a class of assets defined as qualified production property1.
This is one of the OBBBA provisions targeted for implementation in the IRS 2025-26 Priority Guidance Plan2. Unlike another more established special depreciation allowance under IRC §168(k), it’s targeted for certain types of businesses…namely producers, manufacturers and refiners.
The practice of accelerating asset depreciation has been rolled out frequently since the turn of the last century, perhaps most significantly after the terrorist attacks on our nation on September 11, 2001. The idea is to provide businesses an opportunity to write off expenditures for assets that are typically capitalized for financial reporting during the current tax year and reduce their taxable income.
💬 A Few Important Definitions
In order to make this new part of the depreciation statute work, Congress had to create another law with many interwoven parts. So, let’s pick apart the most important pieces.
💡 What Is Qualified Production Property?
Under new IRC §168(n)(2)(A), “qualified production property” means that portion of any nonresidential real property:3
- to which this section applies,
- which is used by the taxpayer as an integral part of a qualified production activity,
- which is placed in service in the United States or any possession of the United States,
- the original use of which commences with the taxpayer,
- the construction of which begins after January 19, 2025, and before January 1, 2029,
- which is designated by the taxpayer in the election made under this subsection, and
- which is placed in service before January 1, 2031.
For purposes of clause (ii), in the case of property with respect to which the taxpayer is a lessor, property used by a lessee shall not be considered to be used by the taxpayer as part of a qualified production activity.
💡 What Is Qualified Production Activity?
IRC §168(n)(2)(D)4 defines the term “qualified production activity” means the manufacturing, production, or refining of a qualified product. The activities of any taxpayer do not constitute manufacturing, production, or refining of a qualified product unless the activities of such taxpayer result in a substantial transformation of the property comprising the product.
There is also a special rule under new IRC §168(n)(2)(B) for certain property not previously used in qualified production activities. In the case of property acquired by the taxpayer during the beginning construction period which begins after January 19, 2025, and before January 1, 2029, the original use requirements shall be treated as satisfied if:
- such property was not used in a qualified production activity (determined without regard to the second sentence of subparagraph (D)) by any person at any time during the period beginning on January 1, 2021, and ending on May 12, 2025,
- such property was not used by the taxpayer at any time prior to such acquisition, and
- the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of IRC §179(d).
The Treasury Department and IRS will have to develop guidance for businesses to implement other established policies such as beginning construction, safe harbor activities, and written binding contract rules.
🚫 Who’s Left Out? Are there any kinds of businesses or business activities excluded from “qualified production property”?
Under IRC §168(n)(2)(C) the term “qualified production property” shall not include that portion of any nonresidential real property which is used for:
- offices,
- administrative services,
- lodging,
- parking,
- sales activities,
- research activities,
- software development or engineering activities, or
- other functions unrelated to the manufacturing, production, or refining of tangible personal property.
These areas would seem to be covered more by the similar accelerated depreciation allowance under IRC §168(k). But ultimately IRS guidance will have to straighten that out.
🚀 Benefits for Start-Ups
In addition to the tax incentives, accelerated 100 percent depreciation under the OBBBA could provide several other financial benefits for young businesses:
- Boost Cash Flow: By deducting the full cost of an asset immediately, an entrepreneur can lower taxable income and pay less in taxes that year. That means more cash stays in your business—money available to hire, market, or innovate.
- Simplified Accounting: Fewer concerns about tracking asset values year after year. Accelerated depreciation can help streamline your bookkeeping, because ultimately your tax accountant, CPA and/or financial advisor (you REALLY need to have one) freeing up time and reducing headaches.
- Encourage Investment: Knowing you can recover costs quickly may make it easier to invest in the tools and technology your business needs to compete.
📅 When Does It Take Effect?
Actually it already has. This provision of the OBBBA became effective the day it was enacted and signed into law on July 4, 2025.
There’s the scoop, everyone! Thanks for taking time to check out this edition of the weekely Tax Clarity Newsletter. If you want to join our mailing list, subscribe and receive a direct copy every Wednesday, or provide any feedback, send an e-mail to admin@sweetclarity.com.
Thank you so much!
References (4)
1 Pub. L. 119-21, 139 Stat. 181 (2025), §70307 –SPECIAL DEPRECIATION ALLOWANCE FOR QUALIFIED PRODUCTION PROPERTY. https://www.congress.gov/119/plaws/publ21/PLAW-119publ21.pdf
2 Current year priority guidance plan, 2025-2026 initial version, released Sept. 30, 2025, https://www.irs.gov/pub/irs-counsel/2025-2026-initial-pgp.pdf
[3] IRC §168(n)(2)(A).
[4] IRC §168(n)(2)(D).
DISCLAIMER: The information in this newsletter is derived from public information, provided for education purposes. It is not provided as a financial advisory service and should be relied upon as such. For advice on a specific tax matter, please consult a tax professional.