Qualified Production Property (QPP): What Manufacturers Need to Know
A new OBBB provision lets manufacturers expense 100% of a new production building in Year 1. Here's who qualifies, what counts, and how to claim it.
TLDR: The One Big Beautiful Bill Act created Qualified Production Property (QPP) under IRC §168(n), the first provision ever to let you deduct 100% of a new non-residential building in Year 1, not just the equipment inside it. It applies to manufacturing, agricultural, chemical, and refining facilities placed in service after July 4, 2025. The benefit can be worth millions on a single facility, but it requires an engineering-based allocation, has firm deadlines, and the election is irrevocable.
For the first time in the history of the U.S. tax code, you may be able to deduct the full cost of a new factory building in the year you place it in service. A provision in the One Big Beautiful Bill Act (OBBB) called Qualified Production Property (QPP) lets manufacturers write off 100% of the production-use portion of a new non-residential building in Year 1. This has never been possible before — buildings have always been depreciated slowly, over 39 years.
On a $10 million facility, QPP can unlock an estimated $5 – $8 million in additional first-year deductions, which equals $1.85 – $3 million in cash tax savings. Note that this is on top of the deductions and cash tax savings from a traditional cost segregation study.
But this benefit is not automatic. There are qualification rules. There is a construction and placed-in-service deadline. And the election is irrevocable once made. Here's what manufacturers need to know.
What Is Qualified Production Property?
Qualified Production Property (QPP) is a new category of property under IRC §168(n), created by the One Big Beautiful Bill Act. It allows 100% first-year expensing of the production-use portion of a new non-residential building — the building structure itself, not just the equipment inside it.
That last point is what makes QPP historic. Under the tax code, the shell of a commercial building has always been depreciated on a 39-year straight-line schedule. Even the most aggressive incentives left the structure out.
How QPP differs from regular bonus depreciation (§168(k))
Bonus depreciation allows for a 100% write-off in year one, but only for shorter-life assets: equipment, fixtures, and land improvements. It has never touched the building structure. QPP is the first time the building structure itself qualifies for 100% first-year expensing.
How QPP layers with a cost segregation study
QPP does not replace cost segregation — it adds a powerful third layer to it. A study on a qualifying facility can now capture a three-layer benefit:
- Personal property (5-year and 7-year assets) — 100% Year 1 via bonus depreciation
- Land improvements (15-year assets) — 100% Year 1 via bonus depreciation
- QPP building structure — 100% Year 1 via §168(n)
Together, these three layers can push the vast majority of a new facility's cost into a single year's deduction.
Who Qualifies for QPP?
Qualification comes down to three questions: Is the business a qualified production activity? Is the property new and in the right window? And which spaces inside the building actually count?
The business: a qualified production activity
Your operation must involve one of the following:
- Manufacturing
- Agricultural production
- Chemical production
- Refining
The activity must result in a “substantial transformation”: a new and different product created from raw material inputs. Simply storing, packaging, or lightly modifying an existing product does not qualify.
NAICS safe harbor. Businesses in NAICS Sectors 31–33 (manufacturing) and Subsectors 111–112 (agricultural production) automatically qualify for property placed in service between July 4 and December 31, 2025.
The property
The building must meet all of the following:
- New, non-residential real property (used or previously placed-in-service property does not qualify)
- Construction began January 19, 2025 – January 1, 2029
- Placed in service July 4, 2025 – January 1, 2031
- Located in the United States or a U.S. territory
What space qualifies within the building
Only the production-use portion of the building qualifies. A typical facility is a mix of qualifying and non-qualifying space:
| Qualifying space | Excluded space |
|---|---|
| Production / manufacturing floor | Administrative offices |
| Raw material receiving & storage | Finished-goods storage |
| Quality control integral to production | Research & development labs |
| Packaging lines | Sales floors / showrooms |
| Utility rooms serving production | Parking |
| Data centers |
Because most facilities mix production and non-production space, mixed-use buildings require an engineering-based allocation to determine exactly how much of the structure qualifies. This is precisely where a cost segregation study comes in.
How Does a QPP Study Work?
A QPP study is similar to a standard cost segregation study, with an additional layer of analysis on top. Our engineering team performs a three-layer analysis of the facility:
- Personal property reclassified to 5- and 7-year lives
- Land improvements reclassified to 15-year lives
- QPP-eligible building structure identified and expensed 100% in Year 1
To do this, engineers map every square foot of the facility and assign each area to either production-use or non-qualifying use, based on how the space is actually used.
The 95% de minimis safe harbor. If 95% or more of the building is production-use, no detailed allocation is required and the entire building qualifies. For facilities below that threshold, the engineering allocation determines the qualifying percentage.
The IRS prefers the cost segregation methodology. IRS Notice 2026-16 explicitly states that an engineering-based cost segregation study is the preferred method for substantiating the QPP allocation.
We deliver a QPP Cost Segregation Study plus an Election Statement. This level of documentation is audit-ready, and your CPA will just attach it to your tax return.
What's the ROI?
Consider an illustrative $10 million manufacturing facility:
- 20% ($2M) reclassifies to 5-, 7-, and 15-year property through traditional cost segregation
- That leaves $8M of building structure that would normally be depreciated over 39 years
- Assume 75% of that structure is production-use → $6M qualifies as QPP
Here is what that $6 million production-use structure looks like with and without a QPP Cost Segregation Study:
| Without QPP (39-yr straight-line) | With QPP (100% Year 1) | |
|---|---|---|
| Year 1 depreciation deduction | ~$150,000 | $6,000,000 |
| Year 1 tax savings (37% rate) | ~$55,000 | ~$2,220,000 |
| Additional Year 1 cash benefit | — | ~$2,160,000 |
Instead of recovering the cost of your building over four decades, QPP delivers roughly $2.22 million of tax savings in Year 1. Note that this is on top of the deductions and cash tax savings from a traditional cost segregation study.
And the time value of money makes it even more valuable. A dollar saved today is worth far more than the same deduction spread thinly across 39 years. QPP pulls that entire benefit forward when you need the capital most, when you just spent millions building the facility.
Figures are illustrative. Your actual benefit depends on construction cost, the production-use percentage of your building, and your tax rate. Always confirm results with your CPA or tax advisor.
Key Deadlines and Rules to Know
QPP is generous, but it is bounded by clear rules. Miss one and the benefit disappears.
- Construction start window. Construction must begin after January 19, 2025 and before January 1, 2029. As with bonus depreciation, a 10% physical work safe harbor can be used to establish the construction start date.
- Placed-in-service window. The property must be placed in service in the U.S. (or a U.S. territory) after July 4, 2025 and before January 1, 2031.
- The election is irrevocable. The QPP election must be made on the original, timely filed return. It cannot be claimed on an amended return later, and once made it cannot be reversed.
- 10-year recapture rule. If the property stops being used in a qualified production activity within 10 years, §1245 recapture applies and a portion of the benefit is clawed back.
Because the election is permanent and the deadlines are strict, it is critical to proactively evaluate this tax strategy.
How to Get Started
Get a free QPP estimate. Send us your total construction cost and a rough floor-plan breakdown, and we'll show you the estimated benefit.
Who should start now: Any manufacturer, agricultural producer, chemical producer, or refiner who broke ground on or purchased a new facility after January 19, 2025, or who is planning new construction in the qualifying window.
What MVO delivers: An engineering-based cost segregation study, a production-use allocation report, and the election statement — everything your CPA needs to claim QPP correctly and defensibly.
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