Details of Public Law 119-21, section 70307 , One Big Beautiful Bill Act

The provision classifies and adds “any qualified production property” as property that is depreciated under modified accelerated cost recovery system (MACRS). However, the provision allows a taxpayer a special depreciation deduction of 100 percent of the adjusted basis for any qualified production property placed in service during the taxable year and the adjusted basis must be reduced by the amount of the deduction before computing the allowable depreciation deduction. The provision defines qualified production property as the portion of any nonresidential real property that meets the following:

Used as an integral part of the qualified production activity However, qualified property where the taxpayer is a lessor and the property is used by a lessee cannot be considered to be used by the taxpayer as part of a qualified production activity.

Placed in service in the United States or any possession of the United States

Original use commences with the taxpayer

Construction begins after January 19, 2025, and before January 1, 2029

Designated by the taxpayer as an election under this provision, and

Placed in service before January 1, 2031.

The provision excludes from qualified production property a portion of any nonresidential real property which is used for office space, administrative services, lodging, parking, sales activities, research, software or engineering, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.

The provision includes special rules to allow the deduction for property acquired by the taxpayer after January 19, 2025, and before January 1, 2029, and if the property was not previously used in qualified production activities during the period beginning on January 1, 2021, and ending on May 12,2025. Additionally, the provision defines qualified production activity to include the manufacturing, production, or refining of a qualified product. Production includes only agricultural and chemical production. The provision also defines a qualified product as any tangible personal property if such property is not a food or beverage that is prepared in the same building as a retail establishment in which such property is sold.

The provision also allows the Secretary to determine an extension for the placed in-service date, if the Secretary determines that an act of God prevents the taxpayer from placing such property in service before such date. This provision allows special depreciation allowances for qualified production property and does not include property where the alternative depreciation system applies.

The provision requires recapture under IRC section 1245 of any qualified production property if within 10 years of the date the property is placed in service, the property ceases to be used as qualified production property, and how the property is used changes.

California conforms with modifications, under the PITL, to the federal rules relating to MACRS depreciation, under IRC section 168, as of the specified date of January 1, 2025. However, California does not conform to this provision to allow the special depreciation treatment for any qualified production property.

California also conforms with modification, under the PITL, to the federal rules relating to capital gains and losses, as of the specified date of January 1, 2025, but does not conform to treatment of any qualified production property as IRC section 1245 property.

California does not conform, under the CTL, to IRC section 168, relating to MACRS depreciation. The CTL is in substantial conformity to the pre-1981 Class Life Asset Depreciation Range System (ADR) deductions. The ADR is an accounting method established by the IRS based on the “useful life” of depreciable property.

The estimated revenue impact to conform to the above federal provisions would result in the following loss:

26/27 27/28 28/29 29/30 ($1,100,000,000) ($700,000,000) ($600,000,000) ($410,000,000)