By Zaher Fallahi, CPA, MS, MBA
The Department of the Treasury and the Internal Revenue Service recently issued Notice 2026-16
2026-02-23 IRS Notice 2026.16
providing interim guidance for a powerful new tax incentive created under the One Big Beautiful Bill Act (OBBBA).
Under newly enacted IRC §168(n), certain nonresidential real property used in qualified production activities may qualify for a temporary 100% special depreciation allowance.
As a Certified Public Accountant with decades of experience in complex tax planning, I believe this provision presents both significant opportunity and serious compliance responsibility for manufacturers, industrial developers, and investors.
What Is Qualified Production Property (QPP)?
To qualify, property must:
- Be nonresidential real property
- Be used as an integral part of a Qualified Production Activity (QPA)
- Begin construction after January 19, 2025, and before January 1, 2029
- Be placed in service after July 4, 2025, and before January 1, 2031
Taxpayers may rely on Notice 2026-16 pending formal regulations
2026-02-23 IRS Notice 2026.16
.
What Qualifies as a Production Activity?
A QPA involves manufacturing, production, or refining that results in a substantial transformation of materials into a final, distinct product.
Qualifying examples include:
- Steel rods converted into bolts
- Wood pulp converted into paper
- Raw ingredients converted into jarred sauce
Non-qualifying activities include:
- Administrative offices
- Sales facilities
- Research-only buildings
- Storage of finished goods
- Mere packaging or bundling
Careful allocation analysis and cost segregation may be required.
Recapture Risk: The 10-Year Monitoring Period
Taxpayers must understand that IRC §168(n) includes a strict 10-year recapture rule.
If the property ceases to be used in a Qualified Production Activity within 10 years, ordinary income recapture under §1245 may apply.
This makes long-term operational planning essential.
Strategic Planning Matters
This provision requires:
✔ Technical eligibility analysis
✔ Proper election statement filing
✔ Integrated facility evaluation
✔ Recapture modeling
✔ Long-term compliance monitoring
As both a CPA and advisor in complex real estate and business structuring, I strongly recommend proactive planning before construction or acquisition decisions are finalized.
A comprehensive Real Estate Taxation resource page is currently under development to address these advanced planning strategies.