IRS Expands Accelerated Depreciation Opportunities for Manufacturers
Published on by Lauren Huster in International Business, Tax Services
- IRS Notice 2026-16 expands accelerated depreciation opportunities: Manufacturers may elect 100% depreciation on qualifying production facilities, significantly improving near-term cash flow.
- Used property may now qualify: Facilities acquired after January 19, 2025, can be eligible if they weren’t previously used in a Qualified Production Activity (QPA) or by the taxpayer (or a related party).
- Flexible space and allocation rules apply: A 95% de minimis rule allows most production-focused facilities to fully qualify.
- Integrated facilities and improvements may be eligible: Additions, improvements, and co-located properties operating as one integrated facility may qualify as separate units.
On February 20, 2026, the IRS released Notice 2026-16, providing additional guidance on the special depreciation allowance for Qualified Production Property (QPP). If you’d like a refresher on the initial impact of the tariff ruling, you can read our earlier blog here.
Section 168(n) overview
Section 168(n) allows manufacturers to elect 100% accelerated depreciation on facilities that meet specific requirements:
- Nonresidential property used by the taxpayer as an integral part of a Qualified Production Activity (QPA).
- Located in the U.S. or a U.S. territory.
- Construction began after January 19, 2025, and before January 1, 2029.
- Placed in service after July 4, 2025, and before January 1, 2031.
Without this election, these facilities would generally be depreciated over 39 years. With it, manufacturers can significantly accelerate deductions, freeing up cash flow and creating greater flexibility to reinvest in operations, equipment, and growth.
Key guidance from Notice 2026-16
The notice provides helpful clarification and, in some cases, expanded opportunity. Here are several notable takeaways:
- Used property may qualify: Property acquired after January 19, 2025, and before, January 1, 2029, can qualify if it wasn’t previously used in a QPA and wasn’t previously used by the taxpayer (or a related party).
- Production vs. nonproduction space must be segregated: However, a practical de minimis rule applies – if at least 95% of the physical space is used for a QPA, the entire space can qualify.
- Reasonable allocation methods are permitted: Taxpayers may allocate a property’s basis between eligible and ineligible portions using square footage, cost segregation studies, architectural or engineering plans, and similar methods. Employee headcount or time spent on QPA activities, however, can’t be used for allocation.
- Improvements and additions may qualify separately: Additions or improvements to an existing facility can potentially be treated as a separate unit of property, opening the door for those costs to qualify as QPP.
- Integrated facilities may be treated as one unit: If multiple properties operate together as an integrated facility and are physically co-located, they may be treated as a single unit. In some cases, this broader view can allow a facility to qualify when it otherwise might not.
The notice also confirms that taxpayers may rely on this guidance until proposed regulations are issued, providing clarity and confidence as planning moves forward.
Talk to us
Tariffs, production shifts, and evolving depreciation rules can feel like a lot to navigate. The good news? There may be meaningful opportunities to minimize your tax burden and maximize cash flow, if you know where to look.
Our team of top international tax pros bring practical insight and industry-specific experience to help manufacturers think strategically about what’s next. If you have questions about how these changes could impact your operations, contact us today to schedule a free consultation.
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