New Tax Break for Manufacturers: 100% First-Year Depreciation on Qualified Production Property
Posted by Kristin Re’ on November 17, 2025
If you’re in manufacturing or a similar industry, a new provision in the One Big Beautiful Bill (OBBB) could mean major tax savings. The Act introduces a 100% first-year depreciation deduction for certain nonresidential real estate classified as Qualified Production Property (QPP), a significant departure from the usual 39-year depreciation schedule for these assets.
What Is Qualified Production Property (QPP)?
The definition of QPP is technical, but here’s the essence:
- QPP refers to the portion of nonresidential real estate used as an integral part of a qualified production activity.
- A qualified production activity includes manufacturing, production, or refining of a qualified product.
- A qualified product is tangible personal property—excluding food or beverages prepared in the same building where they’re sold (so restaurants don’t qualify).
- The activity must result in a substantial transformation of the property.
In short: factory buildings generally qualify, but there are nuances.
Key Timing Rules
To claim the 100% first-year depreciation:
- Construction must begin after January 19, 2025, and before 2029.
- Property must be placed in service in the U.S. or a U.S. possession after July 4, 2025 but before January 1, 2031.
- Original use generally must start with the taxpayer.
Exception: Previously used non-residential buildings may qualify if:
- Acquired after January 19, 2025, and before 2029.
- Not used for qualified production between January 1, 2021, and May 12, 2025.
- Not previously used by the taxpayer before being acquired.
- Used as an integral part of a qualified production activity.
- Placed in service before 2031.
The IRS may extend deadlines for Acts of God.
Pitfalls to Watch Out For
While this deduction is powerful, beware of these traps:
- Leased Buildings: If you lease out the property, it doesn’t qualify—even if the tenant uses it for production.
- Nonqualified Areas: Office space, parking, research labs, software development areas, and similar functions don’t count.
- Recapture Risk: If the property stops being used for qualified production within the 10-year period beginning on the date that QPP is placed in service, ordinary income recapture applies.
Why This Matters
This deduction can dramatically reduce tax liability for manufacturers investing in new facilities. However, identifying qualifying portions of a building and allocating costs correctly can be complex. Once you elect this treatment, you can’t revoke it without IRS consent.
Next Steps
IRS guidance is expected soon. In the meantime:
- Review upcoming construction or acquisition plans.
- Assess whether your property qualifies as QPP.
- Plan for cost allocation and compliance.
Contact our team for personalized guidance and updates on the latest IRS developments.
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As a principal in our tax department, Kristin serves businesses and individuals. She works primarily with commercial entities in a variety of industries, including Partnerships, S-Corporations, and C-Corporations. She has also worked extensively with manufacturers and start-up companies. Kristin helps companies obtain various tax incentives to reduce tax liability and improve cash flow. Her focus is on various federal, state, and local business development incentives, including Start-Up New York, Excelsior Jobs Program, New York State Film Tax credits, and Federal Research and Development tax credits. She is involved with Firm recruitment and hiring, is a member of the Lumsden Manufacturing team, and serves as co-chair of the Firm R&D tax credit department.