Key Takeaways

• Section 168(n) lets eligible manufacturers deduct up to 100% of the depreciable basis of the qualifying production portion of a new or expanded facility.
• Construction must begin after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031.
• Tax savings don’t change what it would cost to rebuild. Review replacement-cost values and business-interruption timelines before construction and again before occupancy.

How Section 168(n) Could Affect Manufacturing Investments

If you’re thinking about building a new manufacturing facility, Section 168(n) is worth a closer look.

Under this provision, you may be able to deduct up to 100% of the depreciable basis of the qualifying production portion of a new or expanded facility in the year it’s placed in service. Even with interest rates, tariffs, and inflation creating uncertainty, savings like that could shape when, and if, manufacturers move forward with expansions and other major capital projects.

Of course, a new building is also a big investment to protect. Before you break ground, it helps to know what the facility would really cost to rebuild and how long it would take to get back up and running after a major loss.

What is Section 168(n)?

Section 168(n) was created by the One Big Beautiful Bill Act (OBBBA). In February 2026, the IRS released IRS Notice 2026-16, which offers interim guidance businesses can rely on until proposed regulations are issued.

For manufacturers that are expanding, modernizing, or adding U.S. production capacity, writing off a building faster can improve cash flow after taxes and make a project easier to justify. But the tax savings shouldn’t be the only number you look at.

What Property Qualifies for Section 168(n) Depreciation?

In general, Section 168(n) applies to nonresidential real property, like a plant or production building, that’s used as an integral part of a qualified production activity. That includes manufacturing, chemical production, agricultural production, and refining that substantially transforms a qualified product. Put simply, the space needs to be used to make something.

Timing matters, too. Construction must begin after January 19, 2025, and before January 1, 2029. The property also generally needs to be placed in service in the United States or a U.S. territory after July 4, 2025, and before January 1, 2031. There are other requirements as well, and IRS guidance explains when some acquired property may qualify.

Every project is different, so loop in your tax and legal advisors to confirm whether yours is eligible. It’s also worth asking how your state handles it. Not every state follows federal depreciation rules, so your state tax savings may look different.

Where Tax Opportunity and Risk Management Intersect

Tax basis, market value, construction budget, and insurable replacement cost answer different questions—and they rarely produce the same number.

That’s why it pays to look at your insurance alongside your tax strategy. A construction budget tells you what it costs to build. A replacement-cost analysis answers a different question: What would it take to repair or replace the property after a covered loss?

For manufacturers, that answer usually goes well beyond the building itself. Specialized electrical systems, automation, process equipment, fire protection, labor and material costs, building code requirements, and how quickly you can get new equipment all affect what recovery costs and how long it takes. Looking at those pieces together helps manufacturers make smarter decisions about values, limits, and coverage.

Here’s an example. Say a specialized production line would take 18 months to replace, but your business-interruption coverage only accounts for 12. That’s a six-month gap, even if the building is rebuilt sooner. A realistic recovery plan should also factor in skilled labor, key vendors, utility capacity, technology systems, and long equipment lead times.

Is Your Manufacturing Investment Properly Valued?

The best time to check these assumptions is before something goes wrong. If you’re planning a new facility or expansion, review your property values and coverage as the project takes shape, then again near completion and before you move in. That gives you time to fix gaps while you still have options.

A few questions worth asking:

• Are your reported property values based on a current replacement-cost analysis?
• Do your property limits reflect the completed facility and installed equipment?
• Do your values account for changing labor and material costs?
• Are ordinance or law exposures, like rebuilding to current codes, addressed?
• Do your business-interruption assumptions reflect a realistic recovery timeline?
• Could specialized equipment, suppliers, utilities, or other dependencies stretch that timeline out?

The right answer isn’t always higher limits. It may be different limits, a longer period of indemnity, updated equipment values, or a closer review of the suppliers and systems that could slow recovery. The goal is coverage that matches what your operation would actually need to get back on its feet.

Protect Your Capital for Your Future

Your risk profile starts taking shape long before the first product comes off the line. Bringing insurance and risk advisors in early means you can work through potential exposures while decisions about the facility, equipment, operations, and insurance program are still on the table.

Section 168(n) can be a real opportunity for manufacturers investing in U.S. production. To get the most out of it, look at your tax strategy and risk strategy together, and make sure your tax, legal, construction, operations, and risk advisors are working from the same numbers.

That’s where Holmes Murphy can help. We’ll work with you to make sure the insurance behind your project holds up, from property values and equipment limits to business-interruption timelines and the suppliers and systems you depend on. We take the time to learn how your facility runs, where recovery could stall, and what success looks like for your business. Then we build a program around it. If this approach resonates with you, reach out today to connect with our team!

This information is for general informational purposes only and is not intended as tax or legal advice. Consult qualified tax and legal advisors regarding eligibility for and application of IRC Section 168(n).