The One Big Beautiful Bill Act introduced a new category of real estate eligible for 100% bonus depreciation: Qualified Production Property (QPP). Codified under IRC §168(n), QPP is designed to incentivize investment in U.S. manufacturing and production infrastructure. While the opportunity is significant, the rules are complex and the IRS has not yet issued formal guidance. This article outlines the core eligibility criteria, key questions to ask, and important caveats for taxpayers considering QPP treatment.

What Is Qualified Production Property?

Qualified Production Property refers to nonresidential real property that is constructed or acquired after January 19, 2025, placed in service before January 1, 2031, and used directly in a qualified production activity. These activities include manufacturing, production, and refining. Property used for office space, research and development, sales, lodging, parking, or software development does not qualify.

Eligibility Criteria

To qualify for QPP treatment, property must meet the following requirements:

• Original Use or Special Rule for Previously Owned Property
  • If newly constructed, the property must be originally used by the taxpayer. If previously owned, it must not have been used in a qualified production activity by any person between January 1, 2021 and May 12, 2025. It also must not have been used by the taxpayer at any time prior to acquisition.
• Timing of Acquisition
  • The property must be acquired under a non-binding contract entered into after January 19, 2025.
• Use in Qualified Production Activity
  • The property must be used directly in the production process. Ancillary or administrative functions do not qualify.

To determine whether a property qualifies for QPP, consider the following:

• Property History
  • Was the property used in manufacturing, production, or refining between January 1, 2021 and May 12, 2025?
  • Has the taxpayer or any related party ever used or owned the property before acquisition?
  • Was the acquisition contract signed before January 19, 2025?
• Tenant and Use
  • Will the tenant engage in a qualified production activity?
  • Is the tenant a related party to the taxpayer?
  • Will the improvements be used directly in production?
• Timing and Structure
  • Will construction begin after January 19, 2025 and be placed in service before January 1, 2031?
  • Will the taxpayer retain operational control or lease the property under a structure that meets the “used by the taxpayer” requirement?

Caveats and Open Questions

While the statute provides a framework, the IRS has not yet issued formal guidance on QPP. Key areas of uncertainty include:

• Definition of “qualified production activity” and how broadly it will be interpreted.
• Treatment of leasehold improvements and who can claim QPP if improvements are funded by the landlord but used by the tenant.
• Interaction with cost segregation and whether certain components qualify separately under QPP.

Qualified Production Property offers real estate investors and manufacturers a powerful opportunity to accelerate depreciation and reduce tax liability. However, eligibility depends on specific facts and proper structuring, and the IRS has not yet issued full guidance. Until further clarification is available, taxpayers should proceed with caution and carefully document their positions.

At ICS Tax, we help clients capture maximum tax savings while ensuring compliance with IRS requirements. Our team includes Certified Cost Segregation Professionals (CCSP) accredited by the American Society of Cost Segregation Professionals (ASCSP). All of our depreciation studies follow the IRS Audit Techniques Guide, and we provide comprehensive audit support to defend your position with confidence.