New federal tax incentives may create significant opportunities for manufacturers investing in domestic production. However, protecting those investments requires careful consideration of property valuations, insurance coverage, and operational continuity.
Key Considerations for Manufacturers
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Accelerated depreciation opportunities: Section 168(n) allows qualifying manufacturers to deduct up to 100% of the depreciable basis attributable to eligible production facilities or qualifying portions of those facilities.
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Important project deadlines: Generally, construction must begin after January 19, 2025, and before January 1, 2029, with qualifying property placed in service before January 1, 2031.
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Insurance implications: Tax deductions do not reduce the cost of rebuilding a facility following a loss. Manufacturers should evaluate replacement-cost valuations, equipment exposures, and business interruption coverage throughout the development process.
A New Financial Opportunity for Domestic Manufacturing
Manufacturers considering new facilities, production expansions, or investments in domestic operations may have an additional financial incentive to move projects forward.
Section 168(n) of the Internal Revenue Code introduces accelerated depreciation opportunities for certain qualifying manufacturing properties. Rather than recovering eligible building costs through depreciation deductions over several decades, businesses may be able to deduct the qualifying depreciable basis in the year the property is placed into service.
For organizations navigating higher borrowing costs, fluctuating construction expenses, tariffs, and economic uncertainty, this provision could meaningfully influence capital allocation and expansion decisions.
However, while favorable tax treatment can improve the financial outlook of a project, it does not eliminate the operational and financial exposures associated with developing and operating a manufacturing facility.
Understanding how these investments affect an organization’s property insurance program and broader risk management strategy is equally important.
Understanding Section 168(n) and Its Requirements
Enacted through the One Big Beautiful Bill Act (OBBBA), Section 168(n) establishes a special depreciation allowance for certain qualified production property.
In February 2026, the Internal Revenue Service published Notice 2026-16, providing interim guidance regarding the provision’s implementation while additional regulations are developed.
For eligible businesses, the ability to accelerate depreciation deductions may improve after-tax cash flow, strengthen project economics, and support investments in expanded U.S. production capacity.
Eligibility, however, depends on several specific requirements.
Which Manufacturing Properties May Qualify?
The provision generally applies to qualifying nonresidential real estate used as an integral part of eligible production activities.
These activities can include manufacturing, chemical production, agricultural production, and refining operations that substantially transform qualifying products.
The primary consideration is whether the property is directly involved in an eligible production process. Areas used for purposes outside qualifying production activities may not receive the same treatment.
Project timing also plays a critical role. To qualify under the general rules:
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Construction must begin after January 19, 2025, and before January 1, 2029.
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The property generally must be placed in service after July 4, 2025, and before January 1, 2031.
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Qualifying property must be located within the United States or a U.S. territory.
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Additional eligibility requirements apply, including specific provisions addressing certain acquired properties.
Because qualification can depend on how a facility is designed, used, and placed into service, manufacturers should work closely with qualified tax and legal professionals.
Businesses should also evaluate applicable state tax treatment. State depreciation rules do not always align with federal provisions, potentially creating differences between federal and state tax benefits.
Why Tax Treatment and Insurable Values Must Be Evaluated Separately
One of the most important distinctions for manufacturers undertaking capital projects is the difference between an asset’s tax basis and its insurable replacement cost. Although both relate to the same property, they serve fundamentally different purposes.
A facility’s tax basis helps determine applicable depreciation deductions. Its construction budget reflects the anticipated cost of completing the original project. Insurable replacement cost, meanwhile, represents the estimated expense of repairing or rebuilding covered property following a loss, subject to applicable policy terms.
These figures should not be treated as interchangeable!
A significant depreciation deduction may reduce a company’s taxable income, but it does not necessarily reduce the amount required to reconstruct the building or replace critical production infrastructure. For manufacturing operations, accurate property valuations must account for much more than the physical structure.
Potential cost drivers include:
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Specialized electrical distribution and mechanical systems
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Automated manufacturing technology and production equipment
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Fire suppression and other facility protection systems
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Construction labor availability and material pricing
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Updated building codes and regulatory requirements
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Equipment procurement, installation, and commissioning timelines
Failing to account for these factors can create substantial differences between reported property values and the actual financial requirements of recovering from a major loss.
Business Interruption: Understanding the True Cost of Downtime
Property damage represents only one component of a manufacturer’s potential financial exposure. When a facility experiences a significant loss, the resulting interruption to production can create financial consequences that extend well beyond the physical repairs.
For manufacturers with specialized equipment, complex production processes, or limited alternative manufacturing capacity, restoring normal operations may take considerably longer than rebuilding the damaged structure.
Consider a facility that relies on a customized production line requiring approximately 18 months to manufacture, deliver, install, and commission. If the company’s business interruption insurance is structured around a 12-month recovery period, the organization could face a significant gap between its assumed coverage period and the time required to resume normal production. That exposure may exist even when the physical building is restored earlier.
A comprehensive business interruption evaluation should consider the full operational recovery process, including equipment lead times, specialized labor availability, supplier relationships, utility infrastructure, technology dependencies, and production restart requirements.
Manufacturers should also evaluate how delays could affect customer commitments, revenue, and ongoing operating expenses. The objective is to align coverage assumptions with the organization’s realistic recovery capabilities rather than relying solely on estimated construction timelines.
Evaluating Insurance Coverage Throughout a Capital Project
Insurance planning should be incorporated into the development of a new manufacturing facility or expansion rather than addressed only when construction is complete. Early involvement from insurance and risk management advisors allows organizations to identify potential coverage challenges while project designs, equipment specifications, and operational decisions are still being finalized.
As a project progresses, reported property values and insurance requirements may change considerably. Manufacturers should revisit their insurance program during initial planning, throughout construction, and again as the facility approaches occupancy and full production.
Questions Manufacturing Leaders Should Be Asking
Before completing a major capital investment, leadership teams should consider the following:
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Property valuation: Have the facility’s insured values been established using a current and credible replacement-cost assessment?
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Completed project values: Will property insurance limits adequately reflect the finished building, infrastructure, and installed production equipment?
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Construction cost changes: Have increases in labor expenses, building materials, and specialized equipment costs been incorporated into the valuation?
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Building code compliance: Does the insurance program appropriately address ordinance or law exposures that could increase rebuilding expenses?
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Operational recovery: Does the business interruption coverage reflect the time realistically required to restore production following a significant loss?
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Critical dependencies: Have potential delays involving equipment manufacturers, key suppliers, utility services, technology systems, and specialized contractors been evaluated?
Addressing these questions does not automatically mean purchasing higher insurance limits.
Depending on the organization’s exposures, the more appropriate solution may involve restructuring coverage, extending the period of indemnity, updating equipment valuations, or addressing specific operational dependencies. The priority should be developing an insurance program that reflects the financial and operational realities of the business.
Connecting Capital Investment Decisions With Long-Term Risk Management
Manufacturing expansions represent more than investments in buildings and equipment. They can also introduce new operational dependencies, change an organization’s exposure to property losses, and increase the financial consequences of an extended shutdown.
Those considerations should be evaluated alongside anticipated tax benefits and projected returns on invested capital.
A coordinated approach brings together finance, tax, legal, construction, operations, and risk management professionals early in the decision-making process. This collaboration helps ensure that the assumptions supporting a project’s financial justification are consistent with the values, recovery timelines, and exposures reflected in the company’s insurance strategy.
Section 168(n) may provide a meaningful incentive for manufacturers to invest in domestic production capacity. Capturing that opportunity responsibly requires looking beyond the immediate tax advantages and considering how the investment will be protected over its useful life.
How Hausmann Group Supports Manufacturing Organizations
At Hausmann Group, we believe effective insurance strategies begin with understanding how a business operates, where its greatest exposures exist, and what could prevent it from achieving its long-term objectives. Our approach extends beyond simply placing insurance policies.
We work with manufacturing leaders to evaluate property valuations, identify potential coverage gaps, assess critical equipment exposures, and develop business interruption strategies that reflect the realities of their operations.
Whether an organization is constructing a new facility, expanding existing production capabilities, or modernizing its equipment, our goal is to help align its insurance program with its evolving risk profile and business objectives.
By understanding the systems, suppliers, and processes that keep production moving, we can help organizations make more informed decisions about protecting their capital investments and managing their total cost of risk.
Planning a manufacturing expansion or significant capital investment?
Connect with Hausmann Group to discuss how a proactive property and casualty risk management strategy can help protect your investment, strengthen operational resilience, and support sustainable growth.
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).
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