Section 168(n) is the exception to the oldest rule in bonus depreciation: that the building never qualifies. Added by the One Big Beautiful Bill Act in July 2025, it allows an elective 100% first-year deduction for qualified production property, meaning the nonresidential real property itself, when that building is used as an integral part of a qualified production activity. For everything else in real estate, the 20-year-or-less rule of IRC section 168(k) still governs, and cost segregation remains the only way to accelerate a building.
The qualification tests
To qualify under IRC section 168(n), the property must clear every one of these:
- It is nonresidential real property used by the taxpayer as an integral part of a qualified production activity: the manufacturing, agricultural or chemical production, or refining of tangible personal property
- It is located in the United States or a US possession
- Its original use begins with the taxpayer
- Construction begins after January 19, 2025 and before January 1, 2029
- It is placed in service before January 1, 2031
- The taxpayer makes the election
The statute carves out the parts of the building not doing production work. Portions used for offices, administrative services, lodging, parking, sales, research, or software development and engineering functions are excluded and stay on the 39-year schedule. That makes a cost-segregation-style allocation between production floor and excluded space part of the compliance work, not just the planning.
The catch for real estate funds
The building must be used by the taxpayer in its own production activity. A fund that develops an industrial building and leases it to a manufacturer is a lessor, not a producer, and generally cannot claim 168(n) on the leased building. The provision is aimed at the operating company. Where it matters for an investor is in sale-leaseback underwriting, build-to-suit pricing, and structures where the production entity itself holds the real estate.
Worked example
A food-processing company breaks ground on a $6,000,000 facility in March 2026 and places it in service in 2028. An allocation shows 70% of the square footage is production floor and integral support space, 20% is office and administration, and 10% is parking structure. The company elects 168(n) and deducts $4,200,000 in year 1. The remaining $1,800,000 of excluded space depreciates over 39 years, and a conventional cost segregation study can still pull that portion's carpet, cabling, and site improvements into 5-year and 15-year classes with regular 168(k) bonus.
Recapture and caveats
The benefit is conditional. If the property stops being used in a qualified production activity within 10 years of being placed in service, the deduction is subject to ordinary income recapture. States that decouple from federal bonus depreciation are unlikely to follow 168(n) either. Amadae's role here is modeling: screening whether a structure can reach 168(n) at all, quantifying the excluded portions, and preparing the returns and elections that claim it.