Section 168(n): A New Tax Break for Manufacturers

This “up-front expensing” means you get the full tax benefit in the first year, instead of waiting nearly four decades under standard depreciation rules.

What Property Qualifies?
To qualify, the property must be tied directly to production activities—like manufacturing, processing, or refining tangible goods. In other words, the property must be an integral part of producing something, not just supporting functions. Key requirements include:

Direct use in production: Property used for manufacturing or refining counts. But office space, administrative areas, sales, software development, research, or parking areas do not.
Construction timing: Work must begin between January 20, 2025, and December 31, 2028, and the property must be ready and in service by December 31, 2030.
Original use: The property must be new to you—the first time it’s being used for a qualified production purpose.
Location: The property has to be placed in service within the U.S. or a U.S. territory.
Election requirement: You must file an election on your federal tax return in the year the property is placed in service.

What’s the Tax Benefit?
The main advantage is cash flow. Instead of writing off production facilities over 39 years, you get a 100% deduction immediately. For a large capital project, that can mean substantial tax savings in the year your facility is completed. These savings can free up capital for reinvestment, hiring, or other business growth.

Things to Keep in Mind

10-Year Rule: If the property stops being used for production within 10 years, some of the tax benefit must be “recaptured” and paid back.
Partial qualification: If part of a building is for production and part is for offices, only the production portion qualifies.
Good records matter: Documentation of construction dates, property use, and the division between qualifying and non-qualifying space will be critical.

Planning Opportunities
This new incentive is especially valuable for manufacturers planning new factories, expansions, or significant upgrades in the coming years. Since the construction window is limited, businesses should start evaluating projects soon. Careful design and planning can maximize the portion of property that qualifies while avoiding areas that don’t.

Moving Forward
The IRS is expected to issue more guidance on certain definitions, like what exactly counts as “substantial transformation” or an “integral part” of production.

At Rudler, PSC, we specialize in helping manufacturers and production businesses understand tax changes and put strategies in place to benefit from them. Section 168(n) offers a powerful new way to reduce your tax bill and support your growth plans—but only if you act within the required timeframe. If you’re considering new construction or major upgrades, now is the time to talk. Reach out to your Rudler advisor to explore how this opportunity could apply to your business.

Important: These are all new changes, and further guidance from the IRS and Treasury Department is expected. The details may change as new regulations and clarifications are issued. Be sure to consult with your tax advisor to understand how these changes affect your specific situation.

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Section 168(n): A New Tax Break for Manufacturers

At Rudler, PSC, we know many of our manufacturing clients are focused on expanding, modernizing, and investing in new facilities. A new law, the One Big Beautiful Bill Act (signed July 4, 2025), has created a major tax-saving opportunity to help with those investments.

RUDLER, PSC CPAs and Business Advisors