The One Big Beautiful Bill is now Public Law 119-21, passed on July 4, 2025. The law features several powerful new financial incentives, including the Special Depreciation Allowance for Qualified Production Property (Section 70307).
This article is for decision-makers to better understand and leverage the law in planning, designing, and implementing a related CapEx project.While we summarize the special depreciation provisions of Section 70307, it’s not meant to be tax advice. We examine what the law does, the benefits, what qualifies, important timelines, and considerations by project phase.
Most importantly, given the time limits, we emphasize what to do next and when to start.
Special Depreciation Allowance for Qualified Production Property (Section 70307)
What It Does
Section 70307 of the law amends the Internal Revenue Code by creating a new provision, IRC 168(n). This provision establishes a special 100 percent depreciation allowance for “qualified production property.” In practice, this means the entire adjusted basis of qualifying property can be deducted in the year the property is placed in service, rather than depreciated over time. The property’s basis is reduced by that deduction before any further depreciation is calculated for current or future years.
Potential Benefits
For companies that qualify, this provision can transform the economics of a capital project. An immediate deduction in year one can accelerate cash recovery, reduce financing risk, and improve project ROI. This benefit can provide flexibility in the coming budget cycles to add advanced equipment, automation, or growth initiatives that might otherwise be deferred.
What Qualifies
As written, a “qualified production property” means that portion of any nonresidential real property which is used by the taxpayer and meets these conditions:
- Must be an “integral part of a qualified production activity.” The property must be used directly in the manufacturing, production, or refining of a qualified product. These activities must result in a substantial transformation of the property comprising the product.
- Products must be tangible personal property, excluding food or beverages prepared in the same building as the retail establishment where they are sold. Food manufacturing in non-retail settings may apply.
- The term “production,” it states, is limited to activities only related to agricultural production and chemical production.
- Placed in service in the United States or any possession of the United States, the original use of which commences with the taxpayer.
- The construction of which begins after January 19, 2025, yet before January 1, 2029, and is placed in service before January 1, 2031.
- Is designated by the taxpayer in the election made under the requirements of the law.
- The allowance applies only if the taxpayer makes the election and specifically designates the eligible portion. (Election is binding unless IRS consent is obtained).
Urgent Timelines
As noted above, time is of the essence. The construction start and placed-in-service deadlines create a narrow window of opportunity. As of this writing, companies only have 40 months to begin construction.
Given the complexity of design, permitting, and procurement (especially for long-lead items), companies should begin feasibility and planning studies well in advance. Other provisions in the law that can be layered in have additional timelines that may accelerate the need for early engagement. And from a resource perspective, competition for subject matter experts in design, engineering, and construction labor is expected to intensify as the deadlines approach.
Considerations Throughout the Project Lifecycle
Planning
- Establish feasibility and confirm the law’s provisions align with your objectives.
- Define the production scope early: Separate production-eligible spaces from non-qualifying areas. This boundary will drive your depreciation election.
- Assess eligibility of repurposed property: Evaluate existing or acquired assets against the special rules for retrofits and acquisitions. Some properties not previously used in production may qualify.
- Model financial outcomes: Integrate the 100% first-year deduction into ROI and cash flow projections. Highlight impacts on financing ratios, internal hurdle rates, and reinvestment capacity.
- Work with your selected partner to model various project delivery methods and contract types to support appropriate stage gates, financial objectives, and project objectives that align with the law.
Site Selection and Incentives
- Stack incentives: Align Section 70307 benefits with state, local, and utility incentive packages. Construction and service milestone timing must align with federal and local incentive clocks.
- Plan for design flexibility: Select sites that can accommodate phased construction, allowing production areas to be placed in service predictably before deadlines.
Programming and Design
- Future-proof for compliance: Program spaces to avoid inadvertent inclusion of excluded uses.
- Documentation for designation: Plan MEP and structural systems with cost segregation in mind to facilitate clear designation at tax time.
Financing and Tax Planning
- Coordinate with tax advisors: Determine the mechanics of making the election, which may not be easily revoked. Align your project cost accounting with the specific designation rules.
- Address recapture risk: Model potential outcomes if the facility's use changes within 10 years.
- Consider AMT position: The deduction counts fully for Alternative Minimum Tax, which can improve planning certainty for companies exposed to AMT.
Procurement, Preconstruction, and Construction
- Support component segregation: Perform a cost segregation study to identify all eligible components to maximize the
- Secure long-lead equipment: Delays can jeopardize the placed-in-service window.
- Field-level documentation: Establish daily reporting protocols to tag construction and systems as production or non-production. This supports substantiation of the election later.
Commissioning and Closeout
- Substantiate placed-in-service status: Capture substantial completion, commissioning, and readiness for intended use in formal documentation. This is key to securing the deduction.
- Maintain an asset ledger: Track which assets are included in the Section 70307 election with supporting evidence of production use.
- Coordinate final filings: Ensure elections, tax returns, and supporting workpapers are synchronized with engineering and construction records.
Want to see the law in full? Download here at congress.gov: Public Law 119-21 PDF
Summary
If your team is considering a new plant or expansion, this law rewards decisive action. Section 70307 can deliver a year-one deduction for “qualified production property,” but only if you start construction by December 31, 2028, and place it in service by December 31, 2030.
Your First Move
Set a near-term deadline to finalize project selection, conduct a feasibility study, and develop a tax strategy. Statutory clocks are running, and early alignment can yield measurable cash flow advantages.
Five Easy Ways Hansen-Rice Can Give You a Head Start
- Provide subject matter expertise to help with CapEx planning and feasibility.
- Support site evaluation studies, ensuring property entitlements and building permits can support timeline provisions.
- Create detailed cost estimates in support of cost segregation analysis.
- Customize project delivery setting the table for efficient project execution.
- Develop comprehensive critical path schedules ensuring properly integrated construction and commissioning activities.
This article provides general information only. Work with your tax advisors to evaluate applicability to your facts and to prepare required elections and returns.
