What is Qualified Production Property?
Qualified Production Property (QPP) refers to the portion of nonresidential real property that is used by the taxpayer as an integral part of a qualified production activity. Qualified production activities include Manufacturing, production, or refining of a qualified product, and activities that result in a substantial transformation of the property comprising the product. A qualified product means tangible personal property, except food or beverages prepared in the same building where they are sold at retail (such as a restaurant or grocery store with an on-site deli).
To claim the 100% deduction, the property must meet timing and usage tests:
1. New Construction Requirement
- Construction must begin after January 19, 2025, and before January 1, 2029.
- The property must be placed in service before January 1, 2031.
2. Original Use Test
- The property’s original use must begin with the taxpayer.
- Used property generally does not qualify.
- An exception does exist for used property if the property has not been used as qualified production property after January 1, 2021.
3. Leased Property
- If the property is leased, only the owner (lessor), not the lessee, may claim the deduction.
This new deduction significantly accelerates cost recovery for businesses investing in U.S.-based production facilities. Fully deducting qualified costs in the first year, manufacturers can improve cash flow, offset taxable income from other operations, and reinvest the cash in internal development.
What is not qualified production property?
The deduction specifically excludes portions of property used for:
- Offices and administrative functions
- Lodging and employee amenities
- Parking areas
- Sales or retail activities
- Research or software development
- Engineering or design functions unrelated to production
Only the space directly tied to manufacturing, production, or refining activities is eligible for the election.
Let’s go through an example of qualified production property election being made:
ABC Manufacturing, Inc. builds a new 50,000-square-foot facility in 2026 to produce automotive components. Construction began in March 2025 and was completed in October 2026.
- 80% of the space is dedicated to manufacturing and refining activities.
- 20% of the space is used for offices and administrative operations.
Since construction began within the eligible window and the building is placed in service before 2031, the manufacturing portion of the property qualifies for the 100% bonus deduction.
ABC Manufacturing may immediately deduct 100% of the cost associated with the 40,000 square feet (80%) used directly for production. The remaining 10,000 square feet (20%) used for offices does not qualify.
Maximize Tax Savings
The 100% bonus deduction for Qualified Production Property represents a substantial opportunity for taxpayers engaged in manufacturing and production. However, careful planning and documentation are key — particularly when allocating costs between qualified and non-qualified areas of a facility. Get in touch with a Wegner CPAs tax advisor to discuss how to maximize this new tax opportunity.
