Production process and substantial transformation of tangible property
NEW 2026 PRODUCTION PROPERTY GUIDE
Reviewed August 17, 2026 · Updated for current federal bonus-depreciation guidance
Production buildings may qualify for a separate 100% federal allowance.
Section 168(n) created a temporary federal election for qualifying nonresidential real property used as an integral part of manufacturing, agricultural or chemical production, or refining. It is separate from the ordinary cost segregation and Section 168(k) bonus-depreciation analysis.
- ✓ No study work before payment
- ✓ CPA-ready final report
- ✓ California statewide
WHY IT MATTERS
Move eligible basis into faster recovery periods.
IRS Notice 2026-16 says the property generally must be used by the taxpayer in a qualifying production activity, satisfy construction or limited acquisition rules, and be placed in service after July 4, 2025 and before January 1, 2031. Mixed-use facilities need a reasonable allocation between eligible production space and excluded uses. California's Franchise Tax Board states that California does not conform to this federal special depreciation treatment, so parallel federal and California schedules may be necessary.
Plain English: you are not creating a new deduction. You are identifying when supported pieces of the property may be depreciated.
WHAT WE REVIEW
What a qualified production property review should document
Construction start, acquisition and placed-in-service dates
Original-use or limited used-property eligibility
Production, office, parking, sales and storage floor areas
Basis allocation using plans, invoices and cost-segregation data
Election statement, change-in-use risk and ten-year recapture window
SHOW ME THE NUMBERS
Illustrative production-facility screen
Illustrative only. This assumes a 37% federal marginal rate where shown and that the owner can currently use the deduction.
- Property value
- New or qualifying acquired facility
- Estimated depreciable basis
- Supported building basis
- Potential faster basis
- Eligible production portion only
- Potential upfront federal effect
- Up to 100% federal election
- Study or comparison benchmark
- California schedule remains separate
This is a timing illustration, not guaranteed permanent tax savings. California commonly requires a separate depreciation schedule because it generally does not conform to federal bonus depreciation.
DOES IT FIT?
Strong candidates usually have four things.
✓
Nonresidential property used directly in production
✓
Construction began after January 19, 2025 and before 2029
✓
Property is placed in service before 2031
✓
Taxpayer and CPA can support the federal election
PORTFOLIO PRICING
More properties. Lower cost per study.
Order and pay for the properties together to receive a simple portfolio discount.
2 properties5% off3 to 4 properties10% off5+ properties15% off
STRAIGHT ANSWERS
Frequently asked questions.
Does every warehouse qualify as production property?+
No. Storage, distribution, offices, parking, sales and other excluded uses do not become qualified production property merely because they share a site with production. The taxpayer must satisfy the activity, use, timing and election requirements.
Can cost segregation data support a mixed-use allocation?+
Yes. Notice 2026-16 identifies cost segregation data, square footage, architectural or engineering plans, process diagrams and construction invoices as examples of reasonable allocation methods, depending on the facts.
Does California follow the federal Section 168(n) allowance?+
No. The California Franchise Tax Board's current federal-change summary says California does not conform to the special depreciation treatment for qualified production property.
Is the free estimate a completed study?+
No. It is an illustrative screen using the facts you provide. No engineering takeoff, professional certification or tax opinion is included. Technical work begins only after a signed and paid engagement.
Does my CPA need to approve the study first?+
No. It is smart to ask whether you can currently use additional depreciation, but the paid study does not require advance CPA approval. Your CPA makes the final filing decision.
Do you guarantee tax savings?+
No. A study accelerates the timing of eligible depreciation. Results depend on basis, property facts, placed-in-service dates, passive-loss rules, tax rates and the owner's filing position.
AUTHORITATIVE SOURCES
Reviewed against current IRS and California guidance.
Last reviewed August 17, 2026. Tax rules and procedures can change. Your CPA should confirm the law that applies to your acquisition date, placed-in-service date and return.
FREE PRELIMINARY PROPERTY SCREEN