The Internal Revenue Service and the Treasury Department released interim guidance on a special depreciation allowance for qualified production property under the One Big Beautiful Bill Act.
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The interim guidance in Notice 2026-16 says the Treasury and the IRS plan to issue proposed regulations on a new provision of the law allowing taxpayers to elect to take a depreciation deduction of up to 100% of the unadjusted depreciable basis of any qualified production property that’s placed in service during a taxable year.
Qualified production property is typically considered to be nonresidential real property used by a taxpayer as an integral part of a qualified production activity. That includes manufacturing, chemical production, agricultural production or refining activity that results in the substantial transformation of the property comprising a qualified product. Along with the other requirements, the special depreciation allowance only applies to qualified production property placed in service after July 4, 2025, and before Jan. 1, 2031.
The notice includes interim guidance on the definitions of qualified production property and qualified production activity, how to determine the special depreciation allowance for qualified production property, and how and when an election to treat property as qualified production property is made. The notice also discusses how the depreciation recapture rules apply to property that no longer meets the necessary requirements to be considered qualified production property.
The Treasury and the IRS said taxpayers can rely on the guidance in Notice 2026-16 until they issue the proposed regulations. In the meantime, they’re asking for comments on the interim guidance, including specific issues on which more guidance is needed. Comments should be sent within 60 days of when the notice was issued on Feb. 20, that is, by April 20, 2026.
