IRS Issues Interim Guidance on 100% Depreciation for Qualified Production Property

The IRS and Treasury Department have released interim guidance, in Notices 2026-11 and 2026-16, which clarify how businesses can apply the new 100% depreciation provisions under the One Big Beautiful Bill Act (OBBBA).  

For companies planning capital investments—particularly in manufacturing, agriculture, chemical production, or refining—the guidance provides useful guidance on when and how accelerated deductions may be available.  

Before diving into the specifics, it helps to start with a basic question many business owners are asking.  

What Does 100% Bonus Depreciation Mean for Businesses in 2026?  

Bonus depreciation allows a business to deduct a large portion (in some cases 100%) of the cost of qualifying property in the year it is placed in service, rather than deducting that cost gradually over several years.  

In practical terms, it accelerates tax deductions tied to capital investments.  

Under the OBBBA, 100% bonus depreciation has been permanently restored for qualifying property acquired and placed in service after January 19, 2025. That change creates meaningful planning opportunities but also requires careful consideration of timing and broader tax impacts, potentially affecting all taxpayers.  

How Does Notice 2026-11 Clarify Section 168(k) Bonus Depreciation?  

The key points of Notice 2026-11 are straightforward:  

• Property must be acquired after January 19, 2025  
• Property must be placed in service after January 19, 2025  
• The 100% rate does not phase down  

Importantly, the IRS intends to apply the existing regulatory framework under Treas. Reg. §1.168(k)-2, with updated effective dates. That continuity offers stability and predictability for businesses familiar with prior bonus depreciation rules.  

The government’s decision to rely on the existing framework provides clarity. Businesses can move forward with investment decisions knowing the foundational rules are largely unchanged.  

In Notice 2026-16, the IRS addressed a separate but related provision allowing taxpayers to elect a special 100% depreciation allowance for certain qualified production property.  

How Does the New Qualified Production Property Depreciation Rule Work Under 168(n)(1)(A)?  

This generally applies to nonresidential real property used as an integral part of a qualified production activity, including:  

• Manufacturing  
• Chemical production  
• Agricultural production  
• Refining activities that substantially transform materials into finished products  

To qualify, the property must be placed in service after July 4, 2025, and before January 1, 2031. In addition, the notice clarifies that a lessor cannot rely on the activities of a lease to satisfy the integral part requirement.  

The Notice outlines how qualified production property is defined, how the deduction is calculated, how the election is made, and how recapture rules apply if the property later ceases to qualify.  

Taxpayers may rely on this interim guidance until formal regulations are issued. Treasury has requested comments through April 20, 2026.  

Can Businesses Elect Out of 100% Bonus Depreciation under 168(k)?  

Yes. Normal 100% bonus depreciation under 168(k) is mandatory unless a taxpayer elects out or elects to take Section 179 expense, allowing businesses to retain flexibility.  

Taxpayers may opt out for an entire class of property in a given year. Additionally, for the first tax year ending after January 19, 2025, taxpayers may elect to apply prior bonus depreciation percentages (generally 40%) instead of the full 100% rate.  

For the Qualified Production Property, taxpayers may elect to take 100% bonus depreciation if eligible. This is a distinct difference from the other bonus depreciation allowed under 168(k). Otherwise, this property will follow the normal depreciation rules.  

These options may be relevant depending on broader considerations, including:  

• State conformity rules (most states do not permit bonus depreciation)  
• Loss limitations through basis, passive loss, or excess business loss rules  
• Partnership allocations  
• Interest expense limitations under Section 163(j)  
• Long-term income projections  

Accelerating deductions can be beneficial, but the optimal approach depends on the company’s overall tax posture.  

How Are Qualified Sound Recording Productions Treated Under the New Rules?  

The OBBBA also extends bonus depreciation eligibility to certain qualified sound recording productions beginning after July 4, 2025.  

Taxpayers will need to evaluate whether bonus depreciation or a Section 181 deduction produces the more favorable result, particularly in light of related code provisions.  

Who Should Review These Depreciation Changes Now?  

• Manufacturers expanding facilities  
• Agribusiness investing in processing  
• Partnerships with significant capital expenditures  
• Businesses planning equipment purchases in 2025–2027  

What Should Businesses Be Considering Before Claiming 100% Depreciation?  

The expanded 100% expensing provisions create meaningful opportunities for businesses making significant capital investments between 2025 and 2030.  

At the same time, these provisions interact with multiple areas of the tax code. The decision to claim 100% depreciation—or to elect out—should be carefully modeled. Accelerated depreciation can be powerful, but it should be evaluated in the context of the full tax picture, not in isolation.  

Businesses planning facility construction, expansion, or major equipment purchases should review acquisition timing, placed-in-service dates, and multi-year projections to determine the most strategic path forward.  

Michigan Decouples From the OBBBA 

In the fall of 2025, the state of Michigan passed laws to decouple from these depreciation provisions, including Section 179 for all taxpayers—C Corps, pass-throughs, and individuals.  

This change creates additional recordkeeping requirements that will need to be considered, as well as planning for state taxes. Other states are currently either following suit or reviewing the impacts of this federal law.  

Evaluating 100% Bonus Depreciation for Your Business? Work with the Experts 

Accelerating deductions can significantly affect cash flow, state tax exposure, partnership allocations, and long-term planning. Before claiming 100% depreciation, or electing out, it’s important to model the full impact.  

Maner Costerisan’s tax advisors can help you assess eligibility, analyze multi-year projections, and determine the most strategic approach for your organization. Reach out to our team to start the conversation at maner@manercpa.com.   

100% Bonus Depreciation FAQs

What property qualifies for 100% bonus depreciation in 2026?  

Property must generally be acquired and placed in service after January 19, 2025. Qualifying assets typically include equipment, certain improvements, and, under the OBBBA, some production-related real property used in manufacturing, agriculture, refining, or chemical production.  

Is 100% bonus depreciation mandatory?  

Yes. Bonus depreciation is automatically applied unless a taxpayer elects out for an entire class of property placed in service during the tax year.  

Does bonus depreciation apply to buildings?  

Most commercial buildings do not qualify. However, certain nonresidential real property used as qualified production property may be eligible under the new OBBBA provisions.  

When does the special production property deduction expire?  

The 100% deduction for qualified production property applies to property placed in service after July 4, 2025, and before January 1, 2031.