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OBBBA Introduces New, 100 Percent First-Year Depreciation Deductions For Manufacturers by Joseph C. Leuchter, CPA

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Posted on September 11, 2025 by Joseph Leuchter

The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, brings significant tax benefits to domestic manufacturing companies. For example, the law restores taxpayers’ ability to fully write off domestic research and development (R&D) expenses in the year they are incurred. It also reinstates 100 percent special depreciation for a long list of new and used property with a maximum useful life of 20 years, such as furniture, manufacturing equipment, heavy machinery, software and qualified improvement property. Yet, one of the more revolutionary provisions of the new law intended to incentivize investment in U.S. manufacturing is a temporary 100 percent first-year depreciation deduction for a new class of qualified production property (QPP).

Definition of QPP

The OBBBA defines QPP as newly constructed nonresidential real property that is integral to a qualified production activity, which includes the manufacturing, production or refining of tangible personal property. Generally, this refers to manufacturing plants, factories, refineries and other facilities located in the U.S. or a U.S. territory that create or process physical products and result in a “substantial transformation” of those properties. The law specifies that “production” activities relate solely to the production of agricultural and chemical products.

A special rule allows the QPP deduction to apply to existing property acquired by a taxpayer that was not previously used for the primary purpose of manufacturing or production from January 1, 2021, to May 12, 2025.

QPP Special Depreciation Eligibility Requirements

Qualifying to expense 100 percent of QPP construction costs in the year the property is placed in service demands that taxpayers adhere to the following requirements:

Exclusions from QPP

The law specifically excludes from the definition of QPP manufacturing facilities that a taxpayer leases, as well as offices and other property space taxpayers use for administrative services, lodging, parking, sales activities, research, software development, engineering or other functions unrelated to the manufacturing, production, or refining of tangible personal property.

With this in mind, taxpayers may consider engaging professionals to conduct a cost segregation study to identify the portions of the property used specifically for manufacturing, production and refinement that will qualify for the full 100 percent deduction.

Other Considerations

The law also includes a special rule for QPP that ceases to be used for manufacturing, production and refinement activities in the future. Should a taxpayer stop using a property for qualifying production activities within 10 years from the date the property is first placed in service, the IRS will consider the property disposed of by the taxpayer, who will need to recapture their previous QPP depreciation deduction and treat that amount as taxable income.

The QPP provisions of the OBBBA are a boon to businesses considering or in the midst of constructing qualifying manufacturing, production or refinery structures, providing unique opportunities to time their projects for maximum tax efficiency and improved cash flow to invest in their operations. However, the language of the law is open to interpretation. Additional guidance from the IRS is needed to help taxpayers and their professional advisors gain a clear understanding of the law’s broad scope and limitations.

About the Author: Joseph C. Leuchter, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he helps individuals and businesses grow wealth and profits while maintaining tax efficiency and compliance. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or info@bpbcpa.com.