New Opportunities Around Qualified Production Property Under the OBBB

July 18, 2025

By Jenn Faust, CPA/PFS
Principal

The One Big Beautiful Bill (OBBB) introduced a new category of real property: Qualified Production Property (QPP). Designed to fuel domestic manufacturing, this provision allows for 100% bonus depreciation on certain real property assets used in qualified production activities (QPA). While the incentive is compelling, the statute leaves important questions unanswered.

What Counts as Qualified Production Property?

QPP refers to nonresidential real property used by the taxpayer as an integral part of a QPA, such as manufacturing, agriculture or chemical production or refining activities. Eligible assets must:

• Be placed in service in the U.S.
• Begin construction after Jan. 19, 2025, and before Jan. 1, 2029
• Be placed in service before Jan. 1, 2031
• Be originally used by the taxpayer

Areas used for offices, administrative services, sales activities, research, software development or engineering or other functions unrelated to manufacturing, production or refining do not qualify.

It is important to note that QPP must be used in a QPA for a period of 10 years after it is placed in service or it will be subject to recapture rules. 

Key Exclusion: Restaurants and Retail Food Prep

The OBBB also explicitly excludes property used to produce food and beverage products in buildings where those items are sold at retail. In other words, restaurants, cafés and similar establishments don’t qualify under the QPP provision even when food preparation occurs on-site. This signals the legislation’s intent to prioritize industrial manufacturing rather than hospitality or retail-based operations.

Warehousing and the ‘Integral Use’ Question

Is warehouse space eligible? That depends. Warehousing linked directly to production, such as raw material staging or finished goods storage, may qualify. But standalone distribution centers or inventory hubs likely fall outside the definition of ‘integral use.’ Treasury guidance will be critical, especially for businesses with mixed-use footprints.

Can Property Lessors Benefit?

The legislation stipulates that, in the case of property with respect to which the taxpayer is a lessor, property used by a lessee shall not be considered to be used by the taxpayer as part of a qualified production activity. However, we await Treasury guidance as to whether the definition of 'taxpayer' extends to common ownership of the rental property and QPA, thereby permitting a self-rental activity to qualify for this accelerated depreciation.

Illustrative Tax Impact

Consider a manufacturer investing in a $5 million facility, with 20%, or $1 million, allocated to non-production areas like offices and retail showrooms. Under pre-OBBB law, the entire building would be depreciated over 39 years, resulting in a modest first-year deduction of about $128,000. However, under the OBBB, the $4 million QPA-eligible portion qualifies for 100% bonus depreciation, yielding a total first-year deduction of $4.025 million. Depending on owner tax rates, that’s a potential federal tax savings of up to $1.15 million.

State Conformity May Vary

While the OBBB offers 100% federal bonus depreciation on the newly created QPP asset type, state conformity is not guaranteed. Many states choose to decouple from federal bonus depreciation provisions and newly defined property types. Planning and evaluation of whether states a taxpayer files in recognize QPP treatment is necessary, as this could materially affect projected tax savings and compliance obligations.

What Businesses Should Do Now

Despite the unknowns, the potential tax benefits are substantial. To navigate this, businesses should:

• Assess whether their production qualifies as QPA
• Review ownership and leasing structures
• Consider accelerating plans to increase capacity or relocate qualifying manufacturing operations
• Consider cost segregation strategies to maximize eligible assets

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