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Two rounds of IRS interim guidance, higher 2026 Section 179 limits and Ohio's conformity decision have reshaped the planning picture since the One Big Beautiful Bill Act became law.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, rewrote the tax depreciation rules in three significant ways: it permanently restored 100% bonus depreciation, raised the Section 179 expensing limits, and created an entirely new category of building property called Qualified Production Property (QPP).
Much of the detail was left to Treasury and the Internal Revenue Service (IRS) to fill in. That work is now underway. The IRS released two rounds of interim guidance in early 2026; the 2026 inflation-adjusted expensing limits are set, and while state conformity with federal tax depreciation rules is complex, Ohio provided taxpayers with some additional insight and guidance. Here is where things stand as you plan capital spending for the rest of 2026 and beyond.
100% Bonus Depreciation Is Permanent, And The Familiar Rules Still Govern
Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was phasing out, dropping to 40% for property acquired and placed in service in 2025. The OBBBA permanently restored bonus depreciation under Section 168(k) to 100% for eligible property acquired and placed in service after Jan. 19, 2025.
Bonus depreciation can still be claimed on both new and used property, and the law added sound recording production property to the list of qualified property for tax years ending after July 4, 2025. Bonus depreciation continues to apply automatically unless the taxpayer elects out of one or more classes of property to preserve depreciation for future years.
On Jan. 14, 2026, the IRS released Notice 2026-11, the first substantive guidance on how the amended Section 168(k) works in practice. The headline for most businesses is continuity. Rather than building a new framework, the IRS said taxpayers should keep applying the existing Section 168(k) regulations with the effective dates swapped out, substituting Jan. 19, 2025, for Sept. 27, 2017, and Jan. 20, 2025, for Sept. 28, 2017. The written binding contract rules, the used property acquisition requirements, the self-constructed property tests, and the component election all carry forward largely intact.
The notice also addresses the elections available under Sections 168(k)(5) and 168(k)(10), including the election to claim 40% bonus depreciation rather than 100% for the first taxable year covering property acquired and placed in service after Jan. 19, 2025. That election was a meaningful lever in 2025 year-end planning and may still matter for taxpayers with returns on extension or amended filings under consideration.
One condition deserves attention. Taxpayers may rely on Notice 2026-11 for property placed in service in tax years beginning before the forthcoming proposed regulations are published, but only if they follow the notice in its entirety beginning with the first year of reliance. Selective reliance is not permitted.
Determining Acquisition & Construction Dates
Because Notice 2026-11 preserves the prior regulatory framework, the mechanics of pinning down an acquisition date are unchanged.
Generally, the acquisition date is the date on which a written contract becomes binding, which is typically the later date on which the contract was entered into and became enforceable under state law. If the contract includes one or more cancellation periods, the acquisition date is the date for all cancellation periods to end. If it includes one or more contingency clauses, the acquisition date is the date all conditions subject to those clauses are satisfied.
For self-constructed property, or property constructed for the taxpayer under a written binding contract, the question becomes when construction began. Construction is treated as beginning when physical work of a significant nature starts, which varies with the facts. The regulations also provide a safe harbor: the date the taxpayer incurs, on the accrual basis, or pays, on the cash basis, more than 10% of the cost of the property, excluding land and preliminary activities. Property manufactured, constructed or produced for the taxpayer by another person must satisfy the same 10% safe harbor when determining the acquisition date.
Documentation is what carries the day here. Contracts, change orders, invoices, and construction schedules are the evidence that supports the date you claim.
Section 179 Expensing: 2026 Limits & Expanded Scope
The OBBBA increased the Section 179 expensing limit to $2.5 million with a dollar-for-dollar phaseout beginning at $4 million, effective for tax years beginning after Dec. 31, 2024. Both figures are indexed for inflation.
For tax years beginning in 2026, Revenue Procedure 2025-32 sets the maximum Section 179 deduction at $2,560,000. The phaseout begins once qualifying property placed in service during the year exceeds $4,090,000 and eliminates the deduction entirely at $6,650,000. The first-year cap on heavy sport utility vehicles rated between 6,000- and 14,000-pounds gross vehicle weight is $32,000.
Taxpayers can claim both Section 179 and bonus depreciation in the same year, which creates useful flexibility. Section 179 is applied first, followed by bonus depreciation and then Modified Accelerated Cost Recovery System (MACRS) depreciation. Unlike bonus depreciation, Section 179 is limited to taxable income from the active conduct of a trade or business, so it cannot be used to generate a loss.
Section 179 expensing generally applies to Section 1245 property, meaning certain tangible and intangible assets that are or have been subject to depreciation or amortization and that, upon sale at a gain, require all or part of that gain to be reported as ordinary income. It can also be claimed on certain qualified real property, which includes Qualified Improvement Property (QIP), or any improvement made by the taxpayer to an interior portion of a building treated as nonresidential real property, along with specific nonresidential real property improvements such as roofs, heating, ventilation and air conditioning systems, and security systems placed in service after the building was first placed in service by any person.
Qualified Production Property: What Qualifies
The OBBBA created a new class of building property under Section 168(n) known as Qualified Production Property. At the taxpayer's election, QPP allows 100% expensing of the portion of nonresidential real property used as an integral part of a Qualified Production Activity (QPA), meaning the substantial transformation of property through manufacturing, production, or refining. Before the OBBBA, that property was generally depreciated over 39 years.
For purposes of the election, production is limited to agricultural and chemical production. Manufacturing and refining are not specifically defined in the statute and presumably carry a broader meaning. A qualified product is any tangible personal property, so long as it is not a food or beverage prepared in the same building as a retail establishment where it is sold.
The timing windows are narrow and worth committing to memory:
- Construction must begin after Jan. 19, 2025, and before Jan. 1, 2029.
- The property must be placed in service after July 4, 2025, and before Jan. 1, 2031.
- The property must be used in the United States or a United States territory, and its original use must commence with the taxpayer.
Space used for offices, administrative services, lodging, parking, sales, engineering, or other functions unrelated to manufacturing, production, or refining is excluded from the definition of QPP. For a mixed-use facility, that makes the allocation of basis between qualifying and non-qualifying square footage one of the most consequential judgments in the entire analysis.
Making The QPP Election, And Living With 10-Year Recapture
On Feb. 20, 2026, Treasury and the IRS released Notice 2026-16, the first substantive guidance on Section 168(n). It addresses several of the open questions the statute left behind, including definitions of QPP and QPA, special rules for related-party leases and dual-use infrastructure, allocation of basis between qualifying and non-qualifying property, treatment of property placed in service and disposed of in the same year, basis redeterminations, property acquired in a like-kind exchange or involuntary conversion, how and when the election is made, and how the recapture rules apply.
Several points stand out for taxpayers modeling a project.
Acquisition timing follows the bonus depreciation playbook.
The notice provides that acquisition dates and the related used-property timing requirements are determined under rules consistent with the Section 168(k) regime, which means the written binding contract and construction-start analysis described above does double duty.
Support space can count when it is genuinely part of the activity.
The notice explains that essential activities include receiving and storing raw materials to be used and consumed during a QPA, provided those activities are conducted within the same property or integrated facility as the QPA.
Lessors face a real obstacle.
As a general rule, the notice provides that where the taxpayer is a lessor, property used by a lessee in a QPA is not treated as used by the taxpayer as an integral part of a QPA. The lessor therefore fails the integral part of the requirement. Related-party lease structures warrant a close look before anyone commits an election.
Recapture runs for 10 years and requires real recordkeeping.
If property ceases to meet the QPP requirements, the taxpayer is allowed a depreciation deduction for the disqualified property as though it were placed in service as a new separate asset on the first day of the taxable year in which the change in use occurs, taking the applicable convention into account. Disqualified property is generally not eligible for special allowances, including Section 179 expenses or bonus depreciation under Section 168(k). Tracking use for a decade to comply with these provisions is likely to be administratively burdensome, particularly for facilities whose product mix or floor plan evolves.
The election is made in the year the property is placed in service and once made, is irrevocable without the consent of the Secretary of the Treasury, acting through the IRS. Taxpayers may rely on Notice 2026-16 for property placed in service in a taxable year beginning before the forthcoming proposed regulations are published, and, as with Notice 2026-11, reliance is all or nothing. A taxpayer cannot follow certain provisions of the notice while taking a different position on others.
State Conformity & Strategic Considerations
State conformity with Federal tax depreciation rules is complex and varies from state to state. While some states conform to the OBBBA changes in full, many do not, and each state can decouple in a unique manner. For example, although Ohio coupled to the Internal Revenue Code as of March 5, 2026 (see Senate Bill 9), Ohio continues to require taxpayers to add back Section 179 expenses and bonus depreciation and deduct those amounts over subsequent years. Taxpayers should consider state conformity as part of tax planning. For further guidance and strategic planning on how the new tax depreciation rules under the OBBBA apply to your business, contact GBQ’s state and local tax team.
Frequently Asked Questions
Is bonus depreciation still 100%?
Yes. The OBBBA permanently restored bonus depreciation to 100% for eligible property acquired and placed in service after Jan. 19, 2025. There is no scheduled phase-down.
What is the Section 179 limit for 2026?
For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, with the phaseout beginning at $4,090,000 of qualifying property placed in service and the deduction fully eliminated at $6,650,000.
What is Qualified Production Property?
QPP is the portion of nonresidential real property used as an integral part of manufacturing, production or refining activity in the United States. Construction must begin after Jan. 19, 2025, and before Jan. 1, 2029, and the property must be placed in service after July 4, 2025, and before Jan. 1, 2031.
Can a landlord claim the QPP deduction?
Generally, no. Notice 2026-16 provides that property used by a lessee in a qualified production activity is not treated as used by the lessor as an integral part of that activity, so the lessor fails the integral part requirement.
Planning Around Guidance That Is Still Taking Shape
Treasury and the IRS have said they intend to issue proposed regulations under Sections 168(k) and 168(n), and that those regulations are expected to be consistent with the interim guidance. Until they arrive, the reliance rules and the irrevocable nature of the QPP election make documentation and modeling more valuable than speed.
If your business is weighing a facility expansion, a large equipment purchase, or a cost segregation study, there is real benefit to running the analysis before the election deadline rather than after. Our specialty tax, construction, and manufacturing teams work through basis allocation, construction-start documentation, and Ohio add-back modeling regularly, and we are tracking the proposed regulations as they develop.
To talk through how the depreciation rules under the OBBBA apply to your specific project, contact GBQ's team of tax professionals.
