Qualified Production Property: A Guide to 100% Bonus Depreciation for Manufacturers

Under the One Big Beautiful Bill Act (OBBA), taxpayers can now leverage 100% bonus deduction on a specific category of real estate known as Qualified Production Property (QPP), which is normally depreciated over 39 years. This is a significant expansion over the existing Qualified Improvement Property (QIP). While QIP is limited to interior renovations and cannot be used for building expansions, QPP includes new construction, acquisitions or additions.

There are several requirements to meet the eligibility criteria. QPP is the portion of nonresidential real property that:

• Is depreciable under Section 168
• Is used by the taxpayer as part of a “qualified production activity”
• Is placed in service in the U.S. or any U.S. possession
• Has original use with the taxpayer (leases are not included)
• Has construction that begins after January 19, 2025, and before January 1, 2029, and is placed in service by January 1, 2031

Qualified Production Activity

A qualified production activity is the manufacturing, production (agriculture and chemical production only), or refining of a qualified product, which is any tangible personal property except food or beverage prepared and sold by a retailer. This process must involve substantial transformation, so assembly and packaging do not qualify. Only the portion of the building used for production is eligible. The portions of the building used for offices, lodging, parking, sales, research, software development, or engineering do not qualify.

Original Use

In the purchase of real property (as opposed to construction), the original use requirement means the property was not used in a qualified production activity by anyone between January 1, 2021, and May 12, 2025, the taxpayer did not use the property before acquisition, and it was not purchased from a related party. In this case, the acquisition date is the date the taxpayer enters into a binding agreement.

Additions & Improvements

Even additions to an existing manufacturing facility can qualify as long as they meet the requirements noted above. The depreciation (bonus) would be computed as if the addition were a separate property. Keeping proper records and documentation in this case is critical to ensure the 100% deduction on the eligible part of the addition. Construction costs must be allocated between qualified and non-qualified uses using a reasonable, defendable method.

Strategic Implications

For manufacturing taxpayers evaluating real estate options—whether purchasing an existing facility, breaking ground on new construction, or expanding a current site—the OBBBA provisions offer a uniquely favorable tax advantage that should be a primary factor in the decision-making process.

By strategically timing these investments and ensuring compliance with QPP standards, businesses can significantly accelerate cash flow through immediate tax savings. Contact your BMF advisor to discuss how QPP might apply to your specific situation.