The Internal Revenue Service (IRS), together with the US Department of the Treasury, has released new guidance explaining how businesses can claim a 100 percent depreciation deduction for certain production facilities.

The clarification comes through Notice 2026-16, issued under anew tax lawknown as the One Big Beautiful Bill (OBBB). While the law created the incentive, many technical details were unclear until this notice was published. With the guidance now available, businesses can rely on the interim rules immediately, even before final regulations are issued.

Under the new rule, businesses may deduct up to 100 percent of the cost of qualified production property in the same year the property is placed in service. This means eligible companies can write off the full cost of qualifying production buildings upfront, instead of spreading depreciation deductions over several decades under normal tax rules.

Importantly, this does not eliminate depreciation entirely. Instead, it provides 100 percent accelerated depreciation for qualifying property. Forcapital-intensive industries, this significantly improves short-term cash flow and may accelerate investment decisions.

The deduction applies only to qualified production property, which generally includes:

A key requirement is that the property must be directly used in an active production activity. The production process must result in a substantial transformation of a product. Buildings used solely for storage, distribution, or administrative purposes do not qualify. Additionally, the property must be directly connected to the production activity to meet eligibility standards.

The IRS makes clear that the benefit applies only if the property is:

If the building is placed in service outside this window, the 100 percent deduction will not apply. This timeline makes the incentive temporary, giving businesses a defined window to act.

Businesses must actively elect to treat their property as qualified production property. The 100 percent deduction does not apply automatically. Taxpayers must follow the election procedures outlined in Notice 2026-16 to claim the benefit.

The notice also explains how to calculate deductions when a building is used partly for production and partly for other purposes. It includes rules covering:

Source: International Business Times UK