In a move unprecedented in tax law, domestic manufacturers can now immediately expense entire production facilities (not over 39 years, but in year one). This revolutionary provision in the One Big Beautiful Bill creates a compelling financial incentive for expanding manufacturing capacity in the United States. For businesses contemplating facility construction or expansion, understanding the timing requirements and strategic implications could transform project economics.
This provision comes from an entirely new code section (168N) which introduces a new category of property called qualified production property. While Section 168K manages bonus depreciation, this new 168N section creates something entirely different.
This isn't about modular buildings or temporary structures. We're talking about full construction from the ground up (foundation and everything) for manufacturing facilities.
Qualified production property is defined as non-residential real property that is an integral part of a qualified production activity.
Qualified production activity includes:
The qualified product is typically tangible personal property, though it can include other items in certain situations.
The key is that the property must be directly involved in the actual production activities (not just ancillary or support spaces).
Critical Timing Requirements
To take advantage of this 100% deduction, you must meet specific timing requirements:
Construction must begin:
Final construction or placed in service:
It's fortunate the law didn't require construction to start before the end of 2025. There's plenty of time to get the ball rolling on a construction project.
If you've been thinking about and contemplating an expansion to your production activities, now is the time to move forward.
Not every part of a manufacturing facility will qualify for this immediate expensing. The property cannot be used for:
The area you're expensing under this section must truly be involved in the manufacturing of the production property. This makes sense. The incentive is designed to encourage actual production capacity, not corporate offices.
If you're building an entire facility or establishing a brand new location for production activity, some of that space will inevitably include office areas and administrative space. You can't run a manufacturing operation without some support functions.
This is where a cost segregation study becomes valuable. A cost segregation study can help define and separate those areas so that you're expensing only the true production space under Section 168N, while handling the administrative areas through traditional depreciation methods.
This precision in allocation ensures you're maximizing your immediate deduction while maintaining proper compliance with the requirements.
This provision is huge for manufacturing clients. Let me put this in perspective:
Former method:
Under Section 168N:
The difference is transformative for manufacturers making significant capital investments.
If you're a manufacturer, here are key questions to consider:
This qualified production property provision doesn't exist in isolation. It's part of a comprehensive strategy in the One Big Beautiful Bill to encourage domestic manufacturing and production.
Combined with:
...the tax environment for manufacturers has never been more favorable.
The ability to immediately expense qualified production property represents a fundamental shift in how the tax code treats manufacturing investment. This isn't a minor adjustment or temporary incentive. It's a powerful, permanent tool designed to drive domestic production capacity.
For manufacturers who have been on the fence about expansion, this provision could be the deciding factor that makes a major capital investment financially attractive.
If you're in manufacturing or production:
Don't let this opportunity pass you by. If you've been contemplating an expansion to your production activities, the time to act is now. Discuss how qualified production property expensing can fuel your manufacturing growth and strengthen your competitive position.
The tax code is finally rewarding domestic manufacturers in a meaningful way. Make sure you're positioned to take full advantage.