Building a factory used to be one of the slowest write-offs in the tax code. The building itself counted as nonresidential real property, which meant depreciating it over 39 years. A $20 million plant handed back a thin sliver of deduction each year while you waited decades for the rest. The One Big Beautiful Bill Act changed that with a brand new category called qualified production property, and it lets you deduct the whole building in year one.
For manufacturers, refiners, and certain producers, this is one of the largest tax incentives to come along in a generation. But it is tightly drawn, the dates are strict, and there is a long-term string attached. Here is what qualified production property is, who qualifies, and the rules that decide whether your building counts.
Qualified production property (QPP) is a new provision, Section 168(n), added by the One Big Beautiful Bill Act. It lets a business elect a 100% depreciation allowance on the building in the year it is placed in service, rather than stretching the deduction across 39 years.
In plain terms, QPP is the portion of nonresidential real property in the United States that a taxpayer uses as an integral part of a qualified production activity. Picture the working shell of a plant, the space where things actually get made. The activity happening inside has to be genuine production, not storage, sales, or back-office work. Turn that 39-year write-off into a single-year deduction and the effect on cash flow is enormous, which is exactly what Congress intended when it wrote the rule to pull manufacturing onto US soil.
Eligibility is won or lost on timing, so commit these to memory. To use QPP, construction has to begin after January 19, 2025 and before January 1, 2029. The property then has to be placed in service after July 4, 2025 and before January 1, 2031. Miss either window and the deduction is gone.
There is also a path for certain acquired property with its own tests around prior use, but for most businesses the story is new construction inside those two windows. Because the deadlines are firm, a plant on the drawing board today should have its timeline checked against them early.
QPP only works if the building supports a qualified production activity (QPA). The law names four: manufacturing, chemical production, agricultural production, and refining. Each one has to result in a substantial transformation of tangible personal property into a qualified product.
The IRS gave clean examples of what "substantial transformation" looks like, drawn from existing rules: turning wood pulp into paper, steel rods into screws and bolts, or fresh tuna into canned tuna. Light repackaging or a small tweak to a finished good does not clear the bar. There is also a shortcut: if your main business activity code maps to a manufacturing NAICS code, or to crop and animal production, and you meet the transformation test, your activity is treated as a QPA.
Now the exclusions, because this is where returns go sideways. QPP does not include any part of the building used for offices, administrative services, lodging, parking, sales, research, software development, or engineering. Since most real plants mix production and non-production space, you split the building's basis between the two using a reasonable method. One useful break in the guidance is a 95% de minimis rule: if at least 95% of the space is used in production, you can treat the whole building as qualifying.
Here is what keeps this from being free money. QPP is a long-term commitment. If the property stops being used in a qualified production activity within 10 years of being placed in service, you have to recapture the benefit as ordinary income under rules similar to Section 1245.
So if you take the full 100% deduction and then sell the plant early, convert it to another use, or shut the line down inside that decade, a chunk of that big write-off comes right back as income. Treasury has also signaled anti-abuse rules aimed at related-party transfers and sale-leaseback arrangements, and the election is largely irrevocable. All of which is why the planning that happens before the property goes into service is the whole game.
On February 20, 2026, the IRS and Treasury released Notice 2026-16, the first substantive guidance on how Section 168(n) works in practice. It spells out the definitions, the election mechanics, how to allocate basis in mixed-use buildings, leasing rules, and recapture. Businesses can rely on that guidance in full until proposed regulations arrive, and the IRS has said those regulations will follow the same framework.
For anyone advising a manufacturing, refining, or agricultural client, Notice 2026-16 is the working rulebook right now. A practical move if a client has a plant in progress: check the construction and in-service dates against the windows, start a cost segregation study to separate qualifying from non-qualifying space, and document the production use carefully from day one. The deduction is generous, but it clearly rewards the businesses that plan ahead. If your firm wants help sizing and claiming a QPP deduction, Madras Accountancy can run the basis allocation, coordinate the cost segregation work, and prepare the election so it holds up.
1. What is qualified production property? It is a new category under Section 168(n), created by the One Big Beautiful Bill Act, that lets a business elect a 100% first-year depreciation deduction on a qualifying US production building instead of depreciating it over 39 years.
2. When must the property be built and placed in service? Construction must begin after January 19, 2025 and before January 1, 2029, and the property must be placed in service after July 4, 2025 and before January 1, 2031.
3. What activities qualify? Manufacturing, chemical production, agricultural production, or refining that results in a substantial transformation of tangible personal property into a qualified product.
4. What parts of a building do not qualify? Space used for offices, administrative services, lodging, parking, sales, research, software development, or engineering. You allocate basis between qualifying and non-qualifying space.
5. What is the 95% de minimis rule? Under Notice 2026-16, if at least 95% of a building's space is used in a qualified production activity, you can treat the entire building as qualifying rather than carving out small non-production areas.
6. What happens if I stop using the building for production? If it leaves qualified production use within 10 years of being placed in service, the deduction is recaptured as ordinary income under rules similar to Section 1245.
7. How is QPP different from bonus depreciation? Bonus depreciation under Section 168(k) covers equipment and short-life property. QPP under Section 168(n) covers the production building itself. They apply to different assets and can be used together.
8. Can businesses rely on the rules before final regulations? Yes. Taxpayers can rely on Notice 2026-16 until the IRS issues proposed regulations, which the agency has said will follow the same framework.
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