The One Big Beautiful Bill Act (OBBBA) created a new tax planning opportunity for domestic manufacturers by introducing Qualified Production Property (QPP), a new category of nonresidential real property that may qualify for a 100% special depreciation deduction if certain requirements are met. If you are a manufacturer planning new facilities, expansions or industrial property conversions, the new rules may significantly accelerate cost recovery.
What Is Qualified Production Property?
QPP is a newly defined category of nonresidential real property. To qualify, the property generally must meet all of the following requirements:
- Property type: It must be nonresidential real property.
- Use: The taxpayer must use the property as an integral part of a Qualified Production Activity (QPA).
- Location: The property must be placed in service in the United States.
- Original use or acquisition status: The original use must begin with the taxpayer, including certain commonly controlled or consolidated group situations, or the property must satisfy an applicable exception for eligible acquired property.
- Construction timeline: Construction must begin after January 19, 2025, and before January 1, 2029.
- Placed-in-service date: The property must be placed in service after July 4, 2025, and before January 1, 2031.
What Activities Qualify?
A Qualified Production Activity (QPA) generally includes activities involving the manufacturing, production or refining of tangible personal property that result in a substantial transformation.
The statute also provides additional clarification on several key terms:
- Production includes agricultural and chemical production.
- A qualified product is tangible personal property, other than food or beverages prepared in the same building as a retail establishment in which the product is sold.
- Substantial transformation means the activity materially changes the form or function of the input materials or components such that the final product is distinct and cannot be readily returned to its original state. The final product must be a distinct item of property from the original constituent elements, materials, inputs or subcomponents.
- Ineligible activities include packaging, repackaging, labeling and minor assembly operations.
In practical terms, the property must support a manufacturing process that turns inputs into a meaningfully different finished product.
What Space Does not Qualify?
Even within a manufacturing facility, certain areas are excluded from QPP treatment. These include portions of property used for:
- Finished goods storage
- Offices
- Administrative services
- Lodging
- Parking
- Sales activities
- Research activities
- Software development
- Engineering activities
- Other functions unrelated to the manufacturing product
As a result, you should closely evaluate how each portion of a facility will be used when assessing potential QPP eligibility.
Can Acquired Property Qualify?
Yes, in some situations.
Previously owned property may still qualify as QPP if it is acquired after January 19, 2025, and before January 1, 2029, and the following conditions are met:
- The property was not used in a qualified production activity by any person between January 1, 2021, and May 12, 2025.
- The acquiring taxpayer did not previously use the property.
- The acquisition is not a related-party transaction.
This provision may create a planning opportunity if you acquire and rehabilitate underutilized or vacant industrial properties for qualifying production use.
Why This Matters
For qualifying QPP, you can deduct 100% of the eligible cost upfront in the year the property is placed in service. For manufacturers with large capital projects, that could mean:
- Faster cost recovery
- Improved near-term cash flow
- Stronger after-tax returns on expansion projects
- Added incentive to invest in domestic production capacity
Why Early Planning Matters
These rules are highly fact-specific. Eligibility may depend on:
- How the property will actually be used
- Whether any portions of the facility are dedicated to excluded functions
- Whether the project meets the required construction and placed-in-service dates
- Whether acquired property satisfies the lookback and use requirements
If you wait until construction is underway or a building is already in service, you may miss opportunities to structure projects more effectively.
How RKL Can Help
The QPP provisions in the OBBBA may offer a significant tax-planning opportunity if your manufacturing business is investing in U.S. production facilities.
RKL can help manufacturers and other eligible businesses:
- Evaluate whether a planned or existing facility may qualify as QPP
- Review project timelines against the statutory deadlines
- Assess whether acquired or rehabilitated property may be eligible
- Identify non-qualifying portions of a facility that may affect the analysis
- Coordinate tax planning with construction, acquisition and fixed asset decisions
If your business is planning a new facility, expanding production capacity or considering an industrial property acquisition, now is the time to evaluate whether QPP could apply. Contact your RKL advisor or Kristin Barshinger to discuss your project and identify planning opportunities before finalizing key decisions.
