MACRS Qualifed Production Property
OBBBA (Sec 70307) Generally, allows taxpayers to immediately deduct 100% of the cost of certain new factories, certain improvements to existing factories, and certain other structures. Specifically, this provision allows taxpayers to deduct 100% of the adjusted basis of qualified production property in the year such property is placed in service.
Effective Date: Applies to property placed in service after July 4, 2025, and before January 1, 2031.
Qualified Production Property: refers to specific portions of nonresidential real property that meet a set of criteria:
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The property must be used by the taxpayer as an integral part of a qualified production activity.
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It must be placed in service within the United States or any possession of the United States.
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The original use of the property must commence with the taxpayer.
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Construction of the property must begin after January 19, 2025, and before January 1, 2029.
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The property must be designated by the taxpayer in an election made on the taxpayer’s tax return. The IRS will issue instructions on how to make this election.
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The property must be placed in service before January 1, 2031.
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Any portion of a property that is used for offices, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or certain other functions is ineligible for this benefit
Production Machinery: Even though manufacturing machinery that does not qualify as qualified production property is not expensed under this provision, it will generally qualify for 100% bonus depreciation that is reinstated by OBBBA.
Qualified Production Activity: Generally, a "Qualified Production Activity" is defined as follows:
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Activities Involved: It refers to the manufacturing, production (limited to agricultural and chemical production), or refining of a qualified product. These activities should result in a substantial transformation of the property comprising the product.
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Qualified Product: A qualified product refers to any tangible personal property that is not a food or beverage prepared in the same building as a retail establishment in which such property is sold.
Recapture rules apply in certain cases where, during the 10-year period after qualified production property is placed in service, the use of the property changes. When the property is sold, to the extent of the bonus depreciation taken, any gain will be ordinary income rather than capital gain,