Tax Insight

Initial guidance released on new deduction for qualified production property under Section 168(n)

Insight
5 minute read
February 23, 2026

What happened?

Treasury and the IRS have issued Notice 2026-16, providing interim guidance on the new special depreciation allowance for qualified production property (QPP) in new Section 168(n), added by the One Big Beautiful Bill Act (OBBBA). The guidance addresses key issues relating to the qualification and computation of this new deduction, often taking the same approach as Notice 2026-11, which recently provided interim guidance on the OBBBA's amendments to the Section 168(k) bonus depreciation rules.

Why is it relevant?

Notice 2026-16 is the first administrative guidance on Section 168(n) — an unprecedented provision that extends a 100% first-year depreciation allowance to nonresidential real property used as an integral part of a qualified production activity (QPA) involving the manufacturing, production, or refining of tangible personal property. The notice addresses key questions, including the definition of eligible activities, the allocation of basis between qualifying and non-qualifying portions of a facility, and other issues that have no direct precedent.

Actions to consider

Companies with current or planned domestic manufacturing, production, or refining operations — or those considering onshoring such operations — should review the interim guidance carefully to evaluate whether they might qualify for this significant new incentive. Notice 2026-16 requests public comments by April 20, 2026, on a range of open issues — including basis allocation methods, the scope of the activity definitions, and additional examples of substantial transformation – providing an opportunity to provide feedback and shape the forthcoming proposed regulations.

PwC will provide a separate, detailed insight on Notice 2026-16 in the coming days.