Business Articles
How the OBBB Expands Bonus Depreciation for U.S. Manufacturers
The One Big Beautiful Bill (OBBB) offers a powerful new incentive for U.S. manufacturers and producers: 100% bonus depreciation for Qualified Production Property (QPP).
The OBBB defines Qualified Production Property as nonresidential real property located in the United States or its territories and used directly in qualified production activities such as manufacturing, refining, chemical production, or agriculture. To qualify, the property’s original use must begin with the taxpayer, and construction must occur within a specific timeframe.
This incentive gives businesses the ability to immediately deduct the full cost of constructing or acquiring qualifying production facilities, offering a strong financial boost for those reinvesting in U.S.-based operations. While the benefit is generous, it comes with precise rules around timing, use, and eligibility.
What the New Rule Allows
Beginning in 2025, businesses can elect to take 100% bonus depreciation on qualifying nonresidential real property that meets all of the following conditions:
- Construction begins after January 19, 2025, and before December 31, 2028.
- The property is placed in service before January 1, 2031.
- It is located in the U.S. or its territories.
- It is used directly in qualified production activities.
- Its original use begins with the taxpayer (with limited exceptions).
Used property can also qualify if it hasn’t been used in a qualified production activity between January 1, 2021, and May 12, 2025, and wasn’t previously used by the taxpayer.
This election is optional and separate from standard bonus depreciation rules, giving businesses flexibility in how they manage large-scale construction projects and capital investments.
Previously, manufacturing buildings were treated as nonresidential real property and depreciated over 39 years. The OBBB’s new bonus depreciation provision dramatically shortens that recovery period, allowing qualified facilities to be fully deducted in the year they’re placed in service.
What’s Not Covered
The new 100% deduction doesn’t apply to properties primarily used for office work, R&D, engineering, lodging, parking, sales, or software development. It’s designed for facilities that substantially transform tangible goods—like manufacturing, refining, or chemical production—not for administrative or support functions.
Retail food and beverage preparation is also excluded.
Who Benefits Most
The greatest benefit goes to businesses that build and use their facilities directly for qualified production activities. For example, a manufacturer that breaks ground on a new U.S. facility in 2026 and begins operations before 2031 could deduct the full construction cost in the first year the building is placed in service.
That immediate expensing can significantly improve cash flow and help fund future expansion.
However, some common ownership structures may face challenges. Developers, landlords, or related-party leases—where one entity owns the property and leases it to an affiliated manufacturing company—are unlikely to qualify under the current rules. Even if they did, passive activity loss limitations could restrict or delay the tax benefit.
In short, this incentive is built for owner-operators who both construct and use their facilities. Businesses with separate real estate entities or complex leasing arrangements will need to plan carefully to see if they can benefit.
Key Planning Considerations
Because this is a time-sensitive opportunity, proactive planning is essential:
- Confirm eligibility. Ensure the property qualifies as QPP under the OBBB’s definition.
- Start early. Construction must begin before the 2028 deadline to qualify for 100% expensing.
- Track timelines and documentation. Keep clear records of construction start dates, costs, and how the facility is used.
- Review ownership structure. Consider whether your entity setup could limit your ability to claim the deduction.
- Understand recapture rules. If the facility stops being used in production within 10 years, the deduction is recaptured as income.
- Plan your election. The election must be made on the original tax return and is irrevocable.
Uncertainty Remains
While the new 100% bonus depreciation provision is now law, much remains unclear, and Treasury guidance will determine how impactful it truly is. The statute limits eligibility to taxpayers directly conducting manufacturing activities, which may exclude landlords, developers, and related-party lease structures where one entity owns the facility and another operates the business. Manufacturers, including the National Association of Manufacturers in letter to Treasury dated October 7, have urged clarification that intracompany leases within consolidated groups should still qualify, as such structures are often used for liability protection or financing reasons. Similarly, questions remain about what activities constitute “qualified production,” whether expansions, upgrades, and maintenance costs are covered, and how multi-use spaces will be treated — all of which could significantly affect the scope of the incentive.
Manufacturers are also calling for practical compliance rules, such as safe harbors and simplified cost segregation methods, to prevent excessive reporting burdens that could erode the benefit’s value. Treasury’s definitions of terms like “qualified production activity” and “qualified product” will be critical in determining whether this provision reaches the full breadth of modern manufacturing, including operations that combine production, logistics, and value-added processes.
D+L: Your Partner for What’s Next in Tax
The OBBB’s 100% bonus depreciation for Qualified Production Property gives manufacturers and producers a powerful new way to reinvest in U.S. operations, but timing, structure, and eligibility all matter.
If you’re considering building or expanding a facility in the coming years, it’s important to start planning now. Early guidance and clear documentation can make the difference between qualifying for full expensing or missing the window altogether.
At Dugan + Lopatka, we help businesses understand how new provisions like this one fit into their broader tax strategy. Our team can walk you through what’s deductible, what’s changed under the OBBB, and how to position your projects for maximum benefit.
Learn more about the OBBB and contact us to see how D+L can help you plan with confidence.