168(n): Up to 100% Depreciation for Qualified U.S. Production Property
by Will Ramirez, on Sep 14, 2026, 1:15:00 PM
Federal tax policy rarely speaks directly to where a company builds, but the 2025 tax law included a provision that does exactly that — a temporary, elective deduction aimed squarely at new domestic manufacturing and production facilities.
For companies planning a U.S. plant, the provision can meaningfully improve the after-tax economics of building, which makes it relevant to site-selection and capital-investment decisions — though the details are technical and belong with tax counsel.
Recent Program Activity: What Changed
The One Big Beautiful Bill (Public Law 119-21), enacted in 2025, added Section 168(n) to the Internal Revenue Code, creating a temporary special depreciation allowance of up to 100% of the eligible depreciable basis of “qualified production property” (QPP). On February 20, 2026, the Treasury Department and the IRS issued Notice 2026-16, providing interim guidance, and announced that proposed regulations consistent with the notice are forthcoming; taxpayers may rely on the interim guidance until those regulations are finalized.
The provision is notable because, unlike ordinary bonus depreciation on equipment, Section 168(n) can reach the building itself — the nonresidential real property used in production — which historically had to be depreciated over decades. It is a depreciation deduction, not a tax credit.
Program Overview: How the Deduction Works
QPP generally means nonresidential real property used as an integral part of a qualified production activity — manufacturing, production, or refining that results in a substantial transformation of the property into a different product. Construction generally must begin after January 19, 2025 and before January 1, 2029, and the property must be placed in service after July 4, 2025 and before January 1, 2031. The election is revocable only with Treasury’s consent, so it warrants careful planning.
The deduction applies to the eligible depreciable basis — not land, and not excluded portions of a building. Space used for offices, administrative services, lodging, parking, sales, research, software development, engineering, or the storage of finished products is generally excluded, unless the taxpayer makes the elective 95%-physical-space treatment and meets its requirements. Certain used property can also qualify under the statute’s acquisition rule.
Notice 2026-16 supplied important operating rules. These include a transitional safe harbor for property placed in service after July 4, 2025 and on or before December 31, 2025 — not a general, permanent eligibility shortcut — and a recapture rule: if qualified property ceases its integral production use within ten years of being placed in service and is then used by the taxpayer in another productive activity, the benefit can be recaptured. An improvement or addition placed in service after the underlying property is treated as a separate unit and can qualify on its own if it meets Section 168(n).
Why It Matters for Site Selection
The ability to immediately deduct much of the cost of a production facility — rather than depreciate it over decades — can change the after-tax cost of building in the United States, and therefore the calculus of whether and where to build domestically. For capital-intensive manufacturing, that timing benefit can be substantial.
Because the allowance is temporary, carries a placed-in-service deadline before 2031, and involves a recapture rule and an election that is difficult to reverse, it rewards careful planning before construction begins and before property is placed in service.
What Companies Should Do
Manufacturers, chemical producers, refiners, and agricultural producers planning U.S. facilities should evaluate Section 168(n) as part of their capital-investment and location planning, and should confirm eligibility, basis, excluded spaces, and any 95%-space election with qualified tax advisors before breaking ground. Companies should also watch for the forthcoming proposed regulations, which may refine key definitions.
Because this federal deduction sits alongside state and local incentives that also drive location economics, the strongest analyses consider both together — with federal positions confirmed by tax counsel and the state and local strategy developed separately.
How SSG Can Help
Site Selection Group advises on state and local incentives and does not provide federal tax advice or perform a client’s federal eligibility analysis; Section 168(n) eligibility, elections, basis, and return positions should be confirmed by the client’s tax counsel. Federal incentives are only one component of a comprehensive location strategy, and SSG specializes in identifying, evaluating, negotiating, and securing the state and local incentives — statutory benefits, discretionary packages, and location-based programs — that can significantly influence where a project ultimately lands.
When federal incentives like Section 168(n) are part of a project’s economics, SSG factors them into the broader site-selection analysis and coordinates the state and local strategy alongside the client’s qualified tax and legal advisors, ensuring the local package complements the client’s overall position.
Federal tax details verified against primary sources as of August 31, 2026; proposed regulations under Section 168(n) remain pending, and rules can change. Site Selection Group advises on state and local incentives and does not provide federal tax advice; Section 168(n) eligibility, basis, and elections should be confirmed with qualified tax counsel. This article is provided for general information and does not constitute tax or legal advice.
