Deduct 100% of Your New Factory Up Front with QPP

Rick Ruberg
Sep 11, 2025
3 min read

Updated: Jun 13

Updated June 13, 2026

A large white industrial building stands in a barren landscape with dry grass and bushes. Overcast sky and calm, neutral mood.

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 One Big Beautiful Bill (OBBB) can do for you, and it's nothing to sneeze at.

📌 2026 Update

The IRS released its first real guidance on QPP in Notice 2026-16 on February 20, 2026. It answers a lot of the open questions from when the OBBB first passed. The big ones: If at least 95% of your building's space is used in production, the whole building can qualify, not just the production floor. The election is irrevocable once you make it. And "production" is narrower than it sounds, since it only covers agricultural and chemical production, while manufacturing and refining are read broadly. This article reflects that guidance. You can rely on the Notice until the IRS issues formal regulations.

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 substantial transformation. Note that "production" here is narrow. The statute limits it to agricultural and chemical production, while manufacturing and refining are read broadly.
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.

Worker in an orange vest and hard hat points at large metal machinery inside a spacious industrial facility with steel beams above.

Top 5 Tips for QPP

Election Required
You must elect QPP on your tax return for the year it's placed in service. The election is irrevocable once made, so run the numbers before you commit.
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. There is also a 95% rule worth knowing. If at least 95% of the building's space is used in qualified production, you can claim the deduction on the entire building, not just the production floor.
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 begins after 1/19/25 and before 1/1/29; placed in service after 7/4/25 and before 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; election is irrevocable
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.