Qualified Production Property for Manufacturers and Industrial Real Estate
- Rick Ruberg
- Sep 11
- 3 min read
Picture this...
You’re standing in the middle of your brand-new manufacturing facility. Machines are humming, conveyors are moving, and production is in full swing.
Business feels good. Now imagine this...
Instead of waiting nearly four decades to recover the cost of that facility through slow depreciation, you deduct every single dollar in the very first year.
That’s not a dream scenario.
That’s exactly what the new Qualified Production Property (QPP) provision under the under the One Big Beautiful Bill (OBBB) can do for you, and it's nothing to sneeze at.
What Is Qualified Production Property (QPP)?
QPP is a fresh category introduced under IRC § 168(n) by the OBBB, aimed at boosting investment in U.S. manufacturing infrastructure. It offers a fantastic perk, 100% bonus depreciation on commercial real estate property that meets certain criteria.
To be eligible, the property must:
Be utilized by the taxpayer as a key component of a qualified production activity, which includes manufacturing, production, or refining tangible personal property that involves a significant transformation.
Represent original use by the taxpayer, or be a previously used property that wasn’t part of production between January 1, 2021, and May 12, 2025, and was not used by the taxpayer prior to acquisition.
Have construction kick off after January 19, 2025, and before January 1, 2029, and be ready for use before January 1, 2031.
Excluded property includes:
Any portion used for offices, administrative services, R&D, lodging, sales, software development, or other non-production-related functions.
Properties leased to a manufacturer, only the operating taxpayer qualifies.
Top 5 Tips for QPP
Election Required
You must elect QPP on your tax return for the year it's placed in service. The IRS will define how this election is made.
Recapture Risk
If you stop using the property in qualified production within 10 years, recapture rules under IRC § 1245 treat it as disposition, forcing ordinary income recognition on prior depreciation.
Structures Matter
Complex structures (like leasing or holding-company ownership) may disqualify you unless the taxpayer is the direct user of the property.
Cost Segregation Plays
A cost segregation study helps isolate which portions of the facility qualify, so you can claim full benefit only on the eligible elements.
Planning Before Acquiring Used Property
If purchasing a previously owned facility, ensure it wasn’t used for production during the disqualifying window and use non-binding contracts signed after Jan 19, 2025.
Qualified Production Property at a Glance
Requirement | Detail |
|---|---|
Eligible Property | Nonresidential real property used in manufacturing, production, or refining (with substantial transformation) |
Timeframe | Construction after 1/19/25, Placed in service by 1/1/31 |
Original Use | Begins with taxpayer; used-property exceptions apply if unused in disqualifying window |
Election | Taxpayer must elect QPP on their return |
Recapture | If not used in production within 10 years, depreciation is recaptured as ordinary income |
Exclusions | Offices, R&D, lodging, administrative functions, leased property |
Structures | Only the user qualifies - structures must align |
Bottom Line
The new Qualified Production Property (QPP) rules represent one of the biggest tax breaks manufacturers have ever seen. Instead of being stuck with a 39-year depreciation schedule, you can now write off the entire cost of your facility in the year it starts operating. This means more capital is available for reinvesting in equipment, hiring new talent, and driving growth.
QPP isn’t automatic.
The eligibility criteria are quite strict, the timelines are tight, and the penalties for misclassification or recapture can be hefty.
It’s essential to plan ahead, carefully structure your projects, and collaborate with tax advisors who know commercial real estate and this provision.
If you’re building, expanding, or modernizing a production facility, this is a once-in-a-generation tax strategy opportunity.
Carpe Diem.
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