Treasury, IRS issue guidance on special depreciation allowance for qualified production property, announce upcoming proposed regulations under the One, Big, Beautiful Bill

IR-2026-25, Feb. 20, 2026

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today provided interim guidance for taxpayers regarding the special depreciation allowance for qualified production property enacted under the One, Big, Beautiful Bill.

Notice 2026-16 PDF announces that Treasury and the IRS will issue proposed regulations on a new provision of the law allowing taxpayers to elect to take a depreciation deduction up to 100% of the unadjusted depreciable basis of any qualified production property placed in service during a taxable year. Qualified production property is, generally, nonresidential real property used by a taxpayer as an integral part of a qualified production activity. A qualified production activity is a manufacturing, chemical production, agricultural production, or refining activity that results in the substantial transformation of the property comprising a qualified product. In addition to other requirements, the special depreciation allowance only applies to qualified production property placed in service after July 4, 2025, and before Jan. 1, 2031.

The notice provides interim guidance regarding the following: definitions of qualified production property and qualified production activity, how to determine the special depreciation allowance for qualified production property, and how and when an election to treat property as qualified production property is made. The notice also explains how the depreciation recapture rules apply to property that ceases to meet the requirements to be qualified production property.

Taxpayers may rely on the guidance provided in Notice 2026-16 until proposed regulations are issued.

Treasury and the IRS also request comments on the interim guidance, including specific issues on which additional guidance is needed. Comments should be submitted within 60 days of the issuance of the notice.