The One Big Beautiful Bill Act (OBBBA) introduces a transformative opportunity for domestic manufacturers by establishing a new category of real estate investments known as Qualified Production Property (QPP), which is eligible for 100% bonus depreciation.
Qualified Production Property
QPP is a newly defined category of real property. To qualify as QPP, the property must meet the following criteria:
- Nonresidential real property
- Used by the taxpayer as an integral part of a Qualified Production Activity (QPA)
- Placed in service within the United States
- Original use commences with the taxpayer or meets specific exceptions for unused acquired property
- Construction begins after January 19, 2025, and before December 31, 2028
- Placed in service before January 1, 2031
QPP does not include any portion of the real property used for the following:
- Offices
- Administrative services
- Lodging
- Parking
- Sales activities
- Research activities
- Software development
- Engineering activities
- Other functions unrelated to the manufacturing product
Special Considerations for Acquired Property
Previously owned property can qualify as QPP where property is acquired by the taxpayer after 1/19/2025 and before 1/1/2029 under the following conditions:
- The property must not have been used in a qualified production activity by any person between January 1, 2021 and May 12, 2025.
- The property must not have been used by the acquiring taxpayer prior to acquisition.
- The property does not belong to a related-party transaction.
This provision creates an opportunity for taxpayers to acquire and rehabilitate underutilized or vacant industrial properties for production use, enabling them to qualify as QPP.
Understanding Qualified Production Activities
A QPA is defined as manufacturing, producing or refining tangible personal property and must result in a substantial transformation.
Further clarification is given on the following terms in the above definition:
- Production: Agricultural and chemical production
- Qualified product: Tangible personal property if such property is not a food or beverage prepared in the same building as a retail establishment in which such property is sold
100% Bonus Depreciation
Under these provisions of the OBBBA, QPP is eligible for 100% bonus depreciation—a tax incentive that allows businesses to immediately deduct a significant portion of the cost of eligible assets in the year they are placed in service, rather than spreading the deduction over the asset’s useful life. The 100% bonus depreciation provision allows businesses to deduct 100% of the cost of qualifying assets upfront.
Strategic Planning
QPP provisions in the OBBBA offer a revolutionary opportunity to provide significant tax benefits and stimulate manufacturing in the U.S. While the potential benefits are substantial, the landscape remains fluid, as additional IRS regulations and guidance are anticipated soon.
Consult your RKL advisor for additional information and tax planning strategies.
