100% Expensing for Qualified Production Property (QPP): What Manufacturers Need to Know

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In summary:

The One Big Beautiful Bill Act introduced a powerful new tax incentive for manufacturers: 100% first-year depreciation for Qualified Production Property (QPP) under IRC Section 168(n). This allows manufacturers to fully expense portions of new or converted nonresidential U.S. facilities used in qualified production activities, provided specific timing and use requirements are met. Key exclusions apply to leased property and non-production areas, and careful documentation is crucial, especially for mixed-use facilities. Manufacturers must affirmatively elect this benefit and plan proactively to mitigate risks of recapture and maximize long-term tax savings.

Written by Steven Nobles, CPA, BMSS Senior Manager

Manufacturers investing in new U.S. production facilities may have a new opportunity to accelerate tax deductions. The One Big Beautiful Bill Act (enacted July 4, 2025) added Internal Revenue Code Section 168(n), which allows an elective 100% first-year depreciation deduction for “Qualified Production Property” (QPP).

Key QPP Requirements & Dates

  • Eligible property: Nonresidential real property (or a portion of it) used as an integral part of a qualified production activity, located in the U.S. or a U.S. territory.
  • Timing window: Construction must begin after January 19, 2025, and before January 1, 2029; and be placed in service before January 1, 2031.
  • Acquired Property: Existing property purchased during the timing window above must not have been used in qualified production at any time between January 1, 2021 and May 12, 2025.
  • Election: QPP is not automatic, taxpayers must make an affirmative election on the return.
  • Leased Property: Leased property (lessor-owned property used by a lessee) is generally excluded from QPP.

1) What Counts as Qualified Production Property?

QPP is generally the qualifying portion of a nonresidential building used in production activities.

Common areas that may qualify:Common areas that may NOT qualify:
Production lines and manufacturing floor space;
Receiving and staging areas for production;
Packaging and warehousing; or
Maintenance areas to support production.

Offices and administrative areas;
Sales showrooms;
R&D and laboratory areas; or
Lodging, parking, and other non-production function areas.

Because QPP only applies to the “portion” of a facility used in production, documentation, especially for mixed-use facilities, will be important and a cost-segregation study may be necessary. 

2) What is a “Qualified Production Activity”?

In general, a qualified production activity includes:

  • Manufacturing of tangible personal property (with certain exclusions for food and beverage prepared in the same building where sold)
  • Agricultural and chemical production
  • Activities that result in a “substantial transformation” of the property into a new product

3) “Original Use” and Used Property

In many cases, QPP requires that the original use of the property begin with the taxpayer.  Exceptions allow some acquired/converted buildings to qualify under certain conditions.

The used-property exception generally requires the following:

  • The used property is acquired after January 19, 2025 and before January 1, 2029.
  • The property was not used by any person in a qualified production activity between January 1, 2021 and May 12, 2025.
  • The taxpayer did not previously own the property and did not acquire it from a related party or in a carryover-basis transaction.

4) Planning Considerations for Manufacturers

QPP is a potentially valuable tax reducing strategy available to manufacturers looking to expand their manufacturing capabilities. Consider the following:

  • Capital project screening: Identify facility projects—new builds, significant expansions, and qualifying conversions—currently in design or planning.
  • Ownership structure matters: Because leased property is generally excluded, evaluate whether the operating company (or a disregarded entity) should own and use the facility rather than leasing it from a separate entity. This could be a change from the standard practice of holding real estate in a separate entity and leasing it back to the operating entity.
  • Cost segregation and space allocations: Consider a cost segregation study to support (i) allocations between production and non-production areas, and (ii) other depreciation opportunities within the project.
  • Recapture controls: If the building ceases to be used in a qualified production activity within 10 years, recapture may apply—so future operational plans and potential facility repurposing should be considered up front.

How Our Team Can Help

If your organization is planning a new facility, an expansion, or a conversion of an existing building, involving the BMSS tax team early in the process can provide peace of mind at every stage. Our proactive, hands-on approach is designed to reduce uncertainty, avoid missed deadlines, and strengthen the defensibility of your tax position so there are no surprises down the road.

We welcome the opportunity to partner closely with your internal teams and advisors to bring clarity and structure to complex decisions. As you plan for the upcoming year, our team can help with the following:

  • Early eligibility and timing analysis to confirm qualifying activities and footprint requirements before commitments are made.
  • Cost segregation coordination with clear documentation standards aligned with IRS expectations, helping support your position in the event of examination.
  • Cash-tax modeling to evaluate QPP versus traditional depreciation methods and related elections, allowing for informed, data-driven decisions.
  • State conformity and multi-state planning to identify potential exposure and planning opportunities across jurisdictions.
  • Long-term operational change and recapture-risk planning over the 10-year period to help protect projected benefits and maintain compliance.

At BMSS, our goal is not just technical accuracy, but in giving you the confidence to know that your tax strategy is thoughtfully planned, well-documented, and built to stand up over time. Contact our manufacturing tax professionals at (833) CPA-BMSS or visit our website for more information.

Selected Resources (Official and Technical)

Disclaimer: This article is for general information only and does not constitute tax advice. Facts and circumstances vary, and guidance may continue to develop. Consult your tax advisor regarding your specific situation.

About BMSS

BMSS Advisors & CPAs was established in 1991 with the vision of creating a CPA firm that would provide peace of mind for its clients while sustaining a healthy, happy culture for its employees. As this dream has been realized, BMSS has grown to become one of the Southeast’s top advisory and accounting firms, now with eight offices throughout Alabama and Mississippi.

The CPA firm specializes in several industries, including (but not limited to) manufacturing, wholesale distribution, construction, technology, nonprofit, and government contracting. In addition to tax planning, compliance and assurance services, the firm boasts a robust business advisory practice area which includes transaction advisory, valuation, client accounting solutions, and CFO advisory services. BMSS also specializes in state and local tax, estate planning and employee benefit plan audits.

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