OBBBA :100% Write-Off for U.S. Manufacturing Property
If you own a business in manufacturing, production the new One Big, Beautiful Bill Act (OBBBA) just brought a powerful new tax break your way.
You may now immediately deduct 100% of the cost of certain U.S. buildings used for production — no waiting, no depreciation over decades.
What’s the Big Change?
Starting with buildings placed in service after the law is enacted, businesses can:
Write off 100% of the cost of qualified production property in the first year they start using it
No need to depreciate it over 39 years
This means less taxable income and more cash flow to reinvest in your operations.
What Counts as “Qualified Production Property”?
To qualify, the property must meet all of these:
❖ Non-residential real estate
❖ Used directly for manufacturing, producing, or refining
❖ Located in the U.S. or a U.S. possession
❖ New to your business (you must be the first to use it)
❖ Construction started between Jan 20, 2025 – Dec 31, 2028
❖ You must elect to use this deduction on your tax return
❖ Placed in service before Jan 1, 2031
What’s NOT Included?
Certain parts of the building don’t qualify, such as areas used for:
❖ Offices or administrative work
❖ Lodging or parking
❖ Sales or customer service
❖ Research, software, or engineering
❖ Only spaces directly tied to production count.
Can Older Buildings Qualify?
Yes — but only if:
❖ The building wasn’t used for production between Jan 1, 2021 – May 12, 2025
❖ It’s new to you (your business hasn’t used it before)
❖ You meet purchase rules similar to those in Section 179
❖ Even if you didn’t build it, you might still qualify — so it’s worth reviewing.
What Is a "Qualified Production Activity"?
This means substantially transforming raw materials into new products — not just packaging or distributing.
Activities like farming or chemical refining count. Restaurant food preparation doesn’t.
Disaster Relief Extension
If a natural disaster delays your timeline, the government may let you extend the Jan 1, 2031 deadline to place the property in service.
Things To Watch Out:
Recapture Rules
If you stop using the building for qualified production within 10 years, you may owe back taxes.
This is called recapture — and you’ll be treated as if you sold the property and must pay tax on part of that original deduction.
Other Technical Notes
This deduction applies to Alternative Minimum Tax (AMT) as well
Once you elect this treatment, it’s hard to reverse
The IRS may issue further guidance on what counts as “substantial transformation”
This is now classified as Section 1245 property, which affects how gain is taxed later
When Does It Start?
This provision kicks in for qualified property placed in service after the law is enacted.
If you're planning to build or buy a facility for production, this could be a major tax-saving opportunity.
Example: Small Manufacturer Uses the 100% Write-Off
A family-owned machine shop in Texas plans to build a new $1.2 million facility in mid-2025. Construction wraps up in late 2027, and they start using it for production in January 2028.
Deduction:
They elect the 100% deduction under Section 70307 of the One Big, Beautiful Bill Act (OBBBA) and write off the entire $1.2 million on their 2028 tax return. At a 20% tax rate, that’s a $240,000 tax saving — all upfront — instead of stretching the deduction over decades.
Cash Flow Impact:
That $240,000 stays in the business — helping them buy new equipment, expand operations, or hire additional staff.
Limits:
If $200,000 of the facility was used for office space, only $1 million qualifies for the deduction.
What If Plans Change?
If they stop using the building for production within 10 years — say, converting it into storage — they may have to pay back part of the tax benefit.
Bottom Line
If you’re investing in US manufacturing space — don’t overlook this new rule.
A 100% first-year deduction could free up serious cash to reinvest in your business. Just be sure the building and activity meet the criteria — and that you make the proper election on your return.
