Qualified Production Property Under OBBBA Turns Production Buildings Into Immediate Tax Deductions
Overview
The One Big Beautiful Bill Act created a new and powerful depreciation provision called Qualified Production Property. Although the provision was publicly framed as an incentive for large scale manufacturing, the are meaningful planning opportunities for small and mid size businesses that own or improve production facilities between 2025 and 2030.
Qualified Production Property allows certain production related real property costs to be deducted immediately rather than recovered over 39 1/2 years. For many closely held manufacturers, fabricators, and processors, this provision fundamentally changes the tax economics of building, expanding, or buying production space.
What Is Qualified Production Property
Qualified Production Property is a new depreciation category enacted under OBBBA Section 70307. It allows accelerated cost recovery for real property used directly in the production of tangible goods when construction begins after January 19, 2025 and the property is placed in service between 2025 and 2030.
In practical terms, if a business builds, expands, or substantially improves a facility used to manufacture, assemble, refine, process, or produce tangible products, a significant portion of those costs may be deducted immediately instead of depreciated over decades.
This Is New Law Not a Modification
Qualified Production Property did not exist under prior law and is not an extension of bonus depreciation. It is not a modification of Section 168 and it operates independently from traditional depreciation rules. Congress created QPP as standalone statutory authority with its own eligibility requirements and timelines.
Effective Dates and Eligibility
- Construction must begin after January 19, 2025
- Property must be placed in service between 2025 and 2030
- The benefit begins to phase down after 2030
- Eligible taxpayers include C corporations, S corporations, partnerships, and sole proprietors
What Property Qualifies
Eligible Qualified Production Property includes:
- Buildings or improvements used directly in production activities
- Manufacturing floors, clean rooms, and assembly areas
- Specialized electrical, plumbing, and HVAC systems tied to production
- On site quality control and testing areas
- Storage areas that are integral to the production flow
Property that does not qualify includes:
- General office or administrative space
- Retail storefronts
- Warehouses used only for distribution
- Residential property
Why This Matters for Small and mid-sized Businesses
Smaller manufacturers tend to expand incrementally rather than through massive new campuses. Under prior law, most building and improvement costs were capitalized and recovered over thirty nine years, producing little near term tax benefit.
Qualified Production Property reverses that outcome. It turns production buildings into near immediate deductions, dramatically improving cash flow during growth years.
Key Tax Benefits From 2025 Through 2030
Immediate deduction of building costs
A qualifying portion of a production facility may be fully deducted in the year placed in service rather than depreciated slowly over time.
Example: An S corporation metal fabrication business with $8 million in revenue builds a $2.5 million shop expansion in 2026. Without QPP, the first year deduction would be minimal. With QPP, the deduction is substantial, producing meaningful cash tax savings.
Stacks with Section 179 and equipment expensing
QPP does not replace Section 179 or equipment depreciation. It layers on top of them. A business may expense machinery under Section 179 while also deducting qualifying building improvements under QPP, often creating net operating losses that shelter future income.
Build versus lease economics shift
Leasing historically produced better tax results than owning production space. Qualified Production Property changes that calculus. Owning and improving production property is now often more tax efficient, encouraging businesses to invest locally and control long term occupancy costs.
Direct benefit to pass through owners
For S corporations and partnerships, QPP deductions reduce ordinary business income passed through to owners. This reduction can lower self employment tax exposure where applicable and interacts favorably with the permanent Qualified Business Income deduction after 2025.
Common Small Business Use Cases
- A craft food manufacturer builds a certified production kitchen and packaging area and fully deducts the build out in the year placed in service
- A specialty plastics shop converts warehouse space into an injection molding floor with qualifying electrical and HVAC upgrades
- A family owned machine shop builds a new CNC wing and combines QPP with equipment expensing to create a multi year tax runway
Planning Considerations
- Construction timing matters and must be documented carefully
- Phased projects require attention to placed in service dates
- Cost segregation remains relevant and often enhances the benefit
- Many states will not conform so multistate modeling is essential
Why Congress Included Qualified Production Property
While large manufacturers receive the largest absolute dollar benefit, the statute was deliberately drafted to include mid market production businesses and avoid megaproject only thresholds. Businesses that manufacture, fabricate, assemble, or process tangible goods and own their space are the quiet winners.
Final Takeaway
For all businesses, Qualified Production Property transforms buildings from slow moving tax assets into near immediate deductions. Any manufacturer or producer considering a lease renewal, expansion, or build out between 2025 and 2030 should evaluate QPP before making a final decision.
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