INDUSTRY HIGHLIGHT
Bonus Depreciation: New IRS Guidelines and What it Means for Taxpayers
A new, temporary depreciation opportunity could deliver significant tax savings for manufacturers and productionfocused businesses. Qualified production property( QPP) applies to certain manufacturing-related real property placed in service after July 4, 2025, and before Jan. 1, 2031. Previously, these assets were depreciated over 39 years. Now, eligible taxpayers may elect to deduct 100 % of the property’ s adjusted basis in the year it’ s placed in service, essentially allowing bonus depreciation for qualifying buildings and production facilities and accelerating the benefit to your bottom line.
The IRS recently issued interim guidance( Notice 2026-16) taxpayers generally can rely on until proposed regulations are published. It clarifies several important issues related to the depreciation deduction.
Identifying QPP
The guidance defines QPP as any portion of nonresidential real property that meets the following criteria:
• Subject to the Modified Accelerated Cost Recovery System.
• Used by the taxpayer as“ an integral part” of a qualified production activity( QPA).
• Placed in service in the United States or any of its territories.
In addition, the property’ s construction must begin after Jan. 19, 2025, and before Jan. 1, 2029. Its original use generally must begin with the taxpayer, though certain used property may qualify as QPP under special rules.
Property( or a portion of property) is used as an integral part of a QPA if it takes place in the physical space of the property( or a portion of the physical space). Each unit of property( including additions and improvements) must satisfy the integral part requirement on its own, with an exception for“ integrated facilities.”
Taxpayers can treat multiple properties operating as an integrated facility on the same piece or contiguous pieces of land as a single unit of property. For example, if a manufacturer constructs a new building to store raw materials and other manufacturing inputs for activities in two factories on the same site, the three buildings constitute a single unit of property for purposes of the integral part requirement.
The guidance also includes a de minimis rule: If 95 % or more of a property’ s physical space satisfies the integral part requirement when the property is placed in service, the taxpayer can elect to treat the entire property as satisfying the requirement.
For purposes of determining whether property meets the integral part requirement, property used by a lessee generally isn’ t considered to be used by the lessor taxpayer as part of a QPA. The guidance provides exceptions, though, for intercompany leases within consolidated groups and commonly controlled pass-through entities.
VIEWPOINTS: ISSUE 1 2026 | 19