On July 4, 2025, President Trump signed the 2025 tax reform into law as P.L. 119-21, Republicans' "One Big Beautiful Bill." Among its most impactful provisions is the permanent restoration of 100% bonus depreciation, offering long-term clarity for tax planning and capital investment strategies, along with the creation of a new expensing allowance for qualified production property (QPP).
Refer to our in-depth article for a comprehensive overview of all tax provisions in the 2025 Final Budget Reconciliation Bill.
Key Takeaways: 2025 Bonus Depreciation, Qualified Production Property and Section 179D Updates
- P.L. 119-21's permanent restoration of 100% bonus depreciation is a major victory for taxpayers planning large capital projects or real estate investments.
- A new asset class, QPP, enacted under Section 168(n), allows real estate owners to immediately expense the manufacturing-use portion of nonresidential real property. This provision is separate from the standard modified accelerated cost recovery systems (MACRS) bonus and can apply to building components that are traditionally 39-year assets. Office, retail and other non-production areas do not qualify.
- On February 20, 2026, the IRS issued Notice 2026-16, providing the first substantive interim guidance on QPP under Section 168(n). Proposed regulations are forthcoming and are expected to be consistent with the notice. Until those regulations are finalized, Notice 2026-16 is the controlling authority.
- Section 179D thresholds were increased under P.L. 119-21. However, the deduction will be eliminated for projects where construction begins after June 30, 2026. The deadline is imminent, creating a narrow planning window for taxpayers with energy-efficient construction projects in progress. See the Section 179D section below for details, and refer to our detailed article for information on the repeal and transition rules for Section 179D.
Placed-in-service timing matters:
- QPP: Property must be placed in service after July 4, 2025, and before January 1, 2031. Construction must begin after January 19, 2025, and before January 1, 2029.
- 100% Bonus Depreciation: Applies to qualified property placed in service after January 19, 2025.
Trump Tax Bill Bonus Depreciation Changes
The Senate version of the bill, which was ultimately passed by the House and signed by the president, makes 100% bonus depreciation permanent for qualified property placed in service after January 19, 2025. This removes the phase-down that was previously scheduled under the Tax Cuts and Jobs Act (TCJA) of 2017.
Under the original TCJA, bonus depreciation was set at 100% through 2022, then scheduled to decrease by 20% each year. By 2025, businesses faced only a 40% write-off in the first year, with a complete phase-out on the horizon. P.L. 119-21 reversed that decline, restoring the full incentive on an indefinite basis.
|
Year |
TCJA Bonus |
P.L. 119-21 Bonus |
|
2022 |
100% |
N/A |
|
2023 |
80% |
N/A |
|
2024 |
60% |
N/A |
|
2025 |
40% |
100% |
|
2026 |
20% |
100% |
|
2027+ |
0% |
100% |
New 100% Depreciation for Qualified Production Property (QPP)
Another major feature of the tax reform is the new 100% first-year depreciation allowance under Section 168(n) for certain commercial real property used in qualified production activities. QPP is defined as the portion of nonresidential real property used by the taxpayer as an integral part of a qualified production activity.
Under Notice 2026-16, qualified production activities include:
- Manufacturing: A material change to the form or function of tangible personal property that results in a new and distinct item of tangible personal property.
- Chemical Production: Formulation of products via chemical processes.
- Agricultural Production: Cultivating land and raising crops or livestock.
- Refining: Purification of raw or intermediate materials into a higher-value product.
Areas used for offices, administrative functions, retail, general warehousing, finished goods storage, software development or other functions not directly involved in qualifying production activities do not qualify as QPP. A parking lot or a clerical office connected to a manufacturing facility, for example, would not be eligible.
In alignment with the broader objective of reshoring production to the United States, QPP must meet several criteria:
- It must be placed in service within the United States.
- Original use must commence with the taxpayer. QPP is generally not available for used property. Under Notice 2026-16, used property can qualify only if it was not used in any qualified production activity between January 1, 2021, and May 12, 2025. Taxpayers acquiring existing facilities should evaluate this carefully.
- Construction must begin after January 19, 2025, and before January 1, 2029.
- The property must be placed in service after July 4, 2025, and before January 1, 2031.
Note on "construction begins": Notice 2026-16 adopts the same rules used for other bonus depreciation purposes. Construction begins when the taxpayer either starts physical work of a significant nature or incurs at least 10% of the total project cost before the applicable deadline. Planning, feasibility studies and architectural work do not count toward the 10% threshold.
Proposed regulations are expected to be consistent with Notice 2026-16 but have not yet been issued. Taxpayers should rely on the notice in the interim, and engage qualified advisors to document QPP claims in accordance with its requirements.
Example:
A company constructing a $20 million advanced manufacturing facility can now immediately write off the full cost if it meets the qualified production definitions, improving project ROI and freeing capital for additional investments. The QPP election covers the building shell and core components that would otherwise be depreciated over 39 years, making this benefit substantially larger than a standard cost segregation study alone.
Bonus Depreciation and QPP Impact on Cost Segregation Studies
A cost segregation study is a tax strategy that allows taxpayers to accelerate depreciation deductions on real estate investments. The study dissects a building's cost into components that can be depreciated over shorter recovery periods, typically five, seven or 15 years, instead of the standard 27.5 or 39 years. This shifts more of the investment into categories eligible for accelerated depreciation, increasing early-year tax deductions and improving cash flow.
Cost segregation is more important than ever. It is the primary mechanism for identifying assets eligible for 100% bonus depreciation and, under Notice 2026-16, it is the key tool for mapping a facility into production versus non-production zones to substantiate QPP claims.
Restored 100% Bonus Depreciation Implications
With permanent 100% bonus depreciation, every dollar reclassified into short-life MACRS property through a cost segregation study can be fully deducted in the first year. This creates large upfront deductions that were previously at risk of diminishing under the old phase-down schedule.
Decision-making on capital-intensive real estate now has long-term certainty built into the modeling. There is no longer a need to race against deadlines or model the impact of declining bonus percentages.
For short-life equipment and easily identifiable land improvements, the federal benefit from cost segregation is less pronounced for property placed in service after January 19, 2025, since 100% bonus depreciation already delivers expensing without a study. Cost segregation studies remain highly valuable, however, for identifying process-related personal property and less identifiable site improvements, and are essential for any QPP analysis.
Example:
A $4 million warehouse purchase in 2025 might, through a cost segregation study, allocate $800,000 to five- and 15-year property. Under the old scheduled phase-down, only $320,000 of that (at 40%) would have been deductible in year one. Now, the entire $800,000 can be written off immediately.
QPP Expensing Implications
With the new expensing allowance for QPP, cost segregation becomes more valuable than before. A defensible study now serves as the mechanism to:
- Map the facility into production versus non-production floor area, as required under Notice 2026-16.
- Substantiate the QPP portion of the building eligible for 100% immediate expensing.
- Apply 100% bonus depreciation to the remaining non-QPP portion that qualifies as short-lived personal property or land improvements through a standard cost segregation analysis.
The QPP election can move a large share of the building shell and core, normally a 39-year property, into current-year expensing. This benefit is far larger than a traditional cost segregation study standing alone and represents the biggest shift in value for qualifying taxpayers.
Example:
A company constructing a $20 million facility for advanced manufacturing can immediately write off the full cost of the QPP-eligible portions if it meets the qualified production definitions. The cost segregation study provides the documentation required under Notice 2026-16 to support that claim.
Enhanced IRC Section 179 Expensing
P.L. 119-21 also raised the IRC Section 179 cap to $2.5 million, allowing businesses to immediately expense more qualifying property. This is particularly useful for smaller investments, personal property additions and equipment purchases.
When paired with cost segregation and bonus depreciation, Section 179 can apply to smaller asset purchases while cost segregation unlocks larger deductions by accelerating structural component depreciation that qualifies for 100% bonus treatment.
Section 179D: Act Now Before the June 30, 2026, Deadline
P.L. 119-21 increased the Section 179D per-square-foot deduction threshold while also establishing a firm sunset tied to the construction-begins date. Projects that break ground on or before June 30, 2026, preserve their eligibility. The deduction remains valuable for commercial building owners and designers whose projects meet the energy performance thresholds.
Tax Planning Implications for 2025 and Beyond
The 2025 tax reform creates a powerful new landscape for real estate owners and businesses:
- Permanent 100% bonus depreciation eliminates the uncertainty that made multi-year capital planning difficult.
- Section 179's higher cap helps maximize write-offs for smaller personal property investments.
- Cost segregation studies are more compelling than ever, since most reclassified building components can be fully deducted upfront, and a study is now the required documentation mechanism for QPP.
- The new QPP allowance opens the door for enormous first-year deductions on manufacturing, chemical production, agricultural production and refining facilities.
- Section 179D remains available for projects beginning construction on or before June 30, 2026. This deadline requires immediate action.
Next Steps
To make the most of the 2025 tax reform provisions, businesses should begin planning now to align with key deadlines and maximize available incentives:
- Pursue cost segregation studies early. Under current law, every dollar of short-lived property potentially qualifies for an immediate write-off, and a study is also the required documentation vehicle for QPP claims.
- Evaluate QPP eligibility if you are investing in manufacturing, chemical production, agricultural production or refining facilities. Engage qualified advisors who can document facility use by production zone in accordance with Notice 2026-16.
- Act immediately on Section 179D. Construction must begin by June 30, 2026. Projects in the planning or early construction phase should be evaluated now.
- Consider the full incentive stack. Cost segregation, QPP and Section 179D can be combined on qualifying projects, significantly amplifying the total tax benefit.
Cherry Bekaert's Tax Credits and Incentives Advisory (TCIA) professionals bring deep experience across all three areas. They can help you identify eligible opportunities, model tax impacts, document QPP claims in accordance with Notice 2026-16 and implement a forward-looking strategy tailored to your organization's goals.
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