Tax Insight

Notice 2026-16 provides framework for new 100% depreciation election

Insight
5 minute read
March 05, 2026

What happened?

Treasury and the IRS released Notice 2026-16, providing interim guidance on the special 100% depreciation allowance for qualified production property (QPP) under Section 168(n), as added by the One Big Beautiful Bill Act (OBBBA). The notice includes rules on the definition of QPP, the requirements for property to qualify, the meaning of a qualified production activity (QPA), election procedures, and recapture rules. Treasury and IRS expect forthcoming proposed regulations to be consistent with this interim guidance.

Why is it relevant?

Notice 2026-16 provides a framework for allowing taxpayers to claim a special 100% depreciation allowance for nonresidential real property used as an integral part of manufacturing, production, or refining activities. The guidance provides definitions of qualifying activities and substantial flexibility through various elections, including the ability to designate specific dollar amounts as QPP on a property-by-property basis. Taxpayers may rely on the provisions of Notice 2026-16 for qualifying property placed in service in tax years beginning before proposed regulations are published, provided the notice is followed in its entirety.

Actions to consider

Companies engaged in manufacturing, production, or refining activities should evaluate their current and planned real property investments to determine eligibility for the special 100% depreciation allowance. It is important for companies to model the downstream impacts of the deduction, including potential recapture consequences if property ceases to be used in a QPA within a 10-year recapture period. This risk of recapture can be reduced through cost segregation studies that identify shorter-lived property eligible for 100% bonus depreciation under Section 168(k), which does not impose recapture. Additionally, companies have an opportunity to influence forthcoming regulations by submitting targeted comments by April 20, 2026.

For a more detailed discussion of Notice 2026-11 and OBBBA’s changes to Sections 168(k), see Preliminary guidance on bonus depreciation provides familiar rules and favorable elections.