Qualified Production Property Studies
Unlock 100% First-Year Depreciation & Maximize Cash Flow
Accelerated tax deductions under IRC Section 168(n) for manufacturers, producers, refiners, and agricultural businesses. See if your production facility qualifies.
What is Qualified Production Property?
Qualified Production Property generally includes the qualifying portion of nonresidential real property used by the taxpayer as an integral part of a qualified production activity. To qualify, the property must generally be MACRS property, located in the United States or a U.S. territory, originally used by the taxpayer, constructed within the required time window, placed in service within the required time window, and properly designated through an election.
The IRS guidance identifies several key timing requirements. Construction must begin after January 19, 2025 and before January 1, 2029. The property must be placed in service after July 4, 2025 and before January 1, 2031.
Qualified production activities generally involve the manufacturing, production, or refining of tangible personal property and must result in a substantial transformation of raw materials, inputs, or components into a final, complete, and distinct product. Examples in the IRS guidance include converting wood pulp to paper, steel rods to screws and bolts, and freshly caught tuna into canned tuna. Packaging finished goods together, by itself, is not enough.
Why QPP Requires Careful Documentation
Not every part of a facility qualifies. IRS Notice 2026-16 excludes areas used for offices, administrative services, lodging, parking, sales activities, research activities, software development, engineering activities, finished-goods storage, or other functions unrelated to qualified production activity.
For mixed-use facilities, the taxpayer must allocate basis between qualifying and nonqualifying property using a reasonable method. The IRS specifically references square footage, cost segregation data, architectural or engineering plans, process diagrams, and construction invoices as methods that may be reasonable, depending on the facts and circumstances.
Engineered Tax Services | ETS helps clients create the engineering-based documentation needed to identify, quantify, and support QPP deductions.
How ETS helps
ETS provides a technical QPP analysis that aligns tax strategy with engineering, facility use, and asset classification. Our team of cost segregation advisors evaluates the facility, reviews supporting records, and helps identify the portion of real property that may qualify for the new 100% Qualified Production Property bonus depreciation allowance.
Our QPP services may include:
Service Area | What ETS Provides |
Eligibility review | We assess whether the taxpayer, facility, activity, construction timeline, placed-in-service date, and property use align with the QPP requirements. |
Engineering-based facility analysis | We review floor plans, process flows, production areas, support areas, equipment layouts, and facility usage to determine which portions of the property are used as an integral part of qualified production activity. |
Cost segregation alignment | We identify personal property, land improvements, and real property components so the taxpayer can coordinate QPP with bonus depreciation and traditional MACRS treatment. |
Basis allocation support | We help allocate basis between eligible and ineligible property using documentation methods contemplated by IRS Notice 2026-16, including cost segregation data, plans, process diagrams, invoices, and facility usage analysis. |
Election support documentation | We provide reporting schedules and supporting workpapers that can help the taxpayer and tax advisor evaluate the QPP election, including whether a full or partial election may be appropriate. |
Recapture awareness | QPP carries a 10-year change-in-use recapture rule. ETS helps clients understand this issue before making an election. |
Who Should Evaluate QPP?
Qualified Production Property may be relevant for businesses investing in:
- Manufacturing facilities
- Food processing facilities
- Chemical production facilities
- Agricultural production facilities
- Refining operations
- Production line expansions
- Facility modernization projects
- Capitalized building improvements serving production areas
- Certain acquisitions of previously non-production property
- Integrated production facilities with multiple buildings or support structures
The opportunity may apply to new construction, certain capitalized improvements, and certain acquired property that meets the special rules for used property. IRS Notice 2026-16 also includes examples where capitalized electrical system upgrades and other improvements may qualify when they serve a qualifying production facility.
Qualified Production Property and Cost Segregation Work Together
QPP does not replace cost segregation. It makes it more important.
A traditional cost segregation study identifies building components that may be classified as shorter-life personal property or land improvements. QPP focuses on the qualifying portion of nonresidential real property used in production.
When coordinated properly, a cost segregation study can help separate:
- Shorter-life personal property that may qualify for bonus depreciation
- Land improvements
- Nonresidential real property that may qualify as QPP
- Nonqualifying areas such as offices, parking, finished-goods storage, sales areas, or administrative space
This allows the taxpayer and tax planning advisor to evaluate the full depreciation strategy, not just one piece of it.
Ready to Evaluate Your Facility for Qualified Production Property?
If your company is building, expanding, acquiring, or improving a production facility, now is the time to evaluate QPP. The rules are time-sensitive, documentation-heavy, and highly dependent on facts and facility use.
Engineered Tax Services | ETS can help determine whether your project may qualify and prepare the engineering-based support needed to align your cost segregation study with the new QPP opportunity.
New 100% Deduction Opportunity for Production Facilities
The One Big Beautiful Bill Act created a new depreciation benefit for certain U.S.-based production facilities. Qualified Production Property may be eligible for a 100% first-year depreciation deduction when the property is used as an integral part of a qualified production activity and meets the IRS timing, use, and election requirements.
ETS helps manufacturers, producers, refiners, and agricultural businesses evaluate QPP eligibility through engineering-based cost segregation and facility-use analysis. Our studies help identify qualifying production areas, separate nonqualifying space, allocate basis, and support the tax advisor’s election strategy.