The New 100% Manufacturing Facility Deduction: A Historic Tax Break You Don’t Want to Miss

If you’re planning to expand production, onshore operations, or modernize your facilities, the new 100% deduction for qualified production property may be the most important tax opportunity of the decade. Thanks to the OBBBA, manufacturers can now deduct the full cost of certain production-related real estate in the year it’s placed in service—instead of depreciating it over 39 years. 

The temporary shift in tax treatment for manufacturing real property has massive implications for cash flow, ROI, and project timelines.  

What the New Deduction Allows 

Under the new rules, businesses can claim a full, immediate deduction for the cost of qualified production property—buildings and structures used directly in manufacturing, refining, or processing tangible goods. These include: 

• Factories 

• Refining halls 

• Assembly lines 

• Production facilities 

Traditionally, these structures are depreciated over nearly four decades. Now? You can write off the entire cost in year one. 

Key Requirements You Must Meet 

To qualify, the property must check all of the following boxes: 

• Used for manufacturing, production, or refining tangible personal property 

• Located in the United States or its territories 

• Construction occurs between January 20, 2025, and December 31, 2028 

• Placed in service before January 1, 2031 

These timelines are tight—and absolutely non-negotiable. A delay in permitting, supply chain, or construction could determine whether your project qualifies. 

What Counts as Manufacturing? 

The IRS has consistently required substantial transformation for an activity to be considered manufacturing. Examples include: 

• Converting wood pulp into paper 

• Machining steel rods into bolts 

• Molding plastic pellets into auto parts 

Simple assembly or storage doesn’t count. Your operations must meaningfully change the form or function of the product. 

What Does NOT Qualify 

Even if part of the building is used for production, certain areas remain ineligible: 

• Offices or administrative space 

• Engineering or software development areas 

• Retail food services or restaurants 

• Warehouses, distribution areas, or sales floors 

• Lodging or parking facilities 

Manufacturers should work closely with architects to clearly separate eligible production space from ineligible zones in all plans and blueprints. 

Buying an Existing Facility? You May Still Qualify 

The deduction isn’t limited to new construction. You can purchase and immediately deduct existing production property if: 

• It’s acquired after January 19, 2025, and before January 1, 2029 

• It wasn’t used for qualified production between January 1, 2021, and May 12, 2025 

• You haven’t previously used it 

• It’s placed in service before January 1, 2031 

This means underused or idle industrial facilities can be rehabilitated and still generate a full deduction, an important opportunity for revitalizing dormant manufacturing assets. 

Two Critical Limitations to Understand 

Before moving forward, keep these restrictions in mind: 

1. You must use the property yourself.

You cannot build a facility, lease it to another manufacturer, and claim the deduction. 

2. You must hold the property for 10 years.

Selling or ceasing to use it for qualified production before the 10-year mark triggers recapture, meaning you’ll pay tax on the deduction at ordinary income rates. 

Why This Matters So Much 

The numbers speak for themselves: 

A $50 million factory previously produced only $1.3 million in annual depreciation. 
Now, it generates a $50 million deduction in year one. 

For manufacturers analyzing onshoring, automation, or capacity expansion, this provision can dramatically: 

• Improve cash flow 

• Accelerate ROI 

• Justify capital-intensive projects 

• Reduce financing pressure 

But beware of the misconception that any warehouse or production facility qualifies. Only buildings used for actual manufacturing, processing, or refining with substantial product transformation qualify. Warehouses and office buildings do not. 

Who Stands to Benefit the Most 

• Manufacturers constructing new facilities or retrofitting existing ones 

• Industrial businesses ramping up domestic production 

• Companies purchasing equipment or heavy vehicles (which also qualify for 100% expensing under other rules) 

One facility build could generate tens of millions in first-year deductions. 

Action Steps Before Year-End 

To take advantage of this powerful incentive, start planning now: 

1. Review upcoming construction or expansion plans. 
   Ensure your project can realistically begin after January 20, 2025. 
2. Map construction timelines carefully. 
   Missing the December 31, 2028, window means missing the deduction entirely. 
3. Prepare for the 10-year holding requirement. 
   Your long-term operational plan matters. Recapture is costly. 
4. Identify idle or underused properties. 
   Some may qualify for acquisition and rehabilitation under the special rules. 

Whether you’re buying new equipment, expanding an existing plant, or breaking ground on a new factory, the combination of bonus depreciation and the new 100% production property deduction is unprecedented. 

For manufacturers, this is a once-in-a-generation opportunity to reduce tax liability, accelerate growth, and strengthen domestic production. 

Now is the moment to evaluate projects, timelines, and long-term strategy before the window opens and the race begins.