OBBBA — Qualified Production Property 100% Deduction (IRC 168(n))

Where this comes from

The One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025, created Section 168(n) as a new tool for manufacturers. A commercial building normally depreciates over 39 years. Section 168(n) collapses that into a single year for qualifying production facilities, giving manufacturers an immediate write-off on the real property itself, not just the equipment inside.

What it establishes

To qualify, a building must be nonresidential real property used as an integral part of a qualified production activity. Manufacturing, production, and refining qualify. Packaging, labeling, and minor assembly do not. Offices, parking, sales space, R&D labs, and storage for finished goods are all excluded.

The timing rules are strict. Construction must begin after January 19, 2025 and before January 1, 2029. The building must be placed in service before January 1, 2031.

A 95% de minimis rule gives some flexibility. If 5% or less of the building serves non-qualifying uses, the whole building can still qualify. Above 5%, you must allocate. The qualifying portion gets the deduction. The rest does not.

The election is irrevocable. And there is a 10-year recapture rule: if the building stops being used for qualified production within 10 years, some of the deduction comes back as income under Section 1245.

How it connects to a cost segregation study

Claiming the Section 168(n) deduction requires proof of allocation. You need to show which parts of the building serve qualified production and which parts do not. That means measuring the space, documenting the uses, and assigning a portion of the total building cost to each use.

That work is exactly what a cost segregation engineer does. A study built to cover Section 168(n) documentation creates the record you need to defend the election on exam. For a qualifying manufacturer, combining a cost segregation study with the 168(n) election could allow a deduction on both the components inside the building and the building itself in year one.

What it does not mean

Section 168(n) is only for new construction started after January 19, 2025. It does not apply to existing buildings or acquisitions. And it only covers the qualifying production portion. Excluded uses get no benefit.

The recapture rule is a real cost. If the business changes and qualified production use stops within 10 years, the recaptured income under Section 1245 could be significant. This is a decision that requires careful planning and good documentation, not a reflex election.