Updated April 2026
If you’re planning a new plant or major expansion in the U.S., the One Big Beautiful Bill Act (OBBBA) just changed the math. For many manufacturers, the numbers are significant. On a $10 million qualifying facility, the time value benefit of QPP versus standard 39-year depreciation can approach $1.35 million. That’s not a rounding error.
The new IRC §168(n) created the Qualified Production Property (QPP) deduction, an elective 100% first-year deduction for certain production-integral portions of nonresidential real property. For qualifying projects, what used to be a 39-year write-off can shift into year one, dramatically improving cash flow and payback.
So, what does this mean in plain English? QPP covers the part of your U.S. facility that is integral to actually making a product. Not the front office, not the parking lot.
Think: production bays, clean rooms, process utilities and structures that turn an input into a different, saleable product. To qualify, that portion of the building must be:
- Nonresidential real property (factory/plant/production facility)
- Located in the United States
- Used by you as an integral part of a qualified production activity
- Originally used by you (with limited exceptions for unused property)
- Constructed and placed in service within specific timing windows (more below)
What qualifies and what doesn’t:
Under current law, QPP is tied to specific types of qualified production activities that involve a substantial transformation of tangible personal property.
Qualifying Activities:
-
Manufacturing:
Manufacturing
(metal fabrication, electronics assembly, injection molding, food/beverage processing lines, pharma/biotech suites)
-
Refining:
Refining
(petroleum or metals)
-
Production:
Production as defined by the statute
(agricultural and chemical production only; other industries qualify under manufacturing or refining)
Statutory Exclusions:
- Offices/admin, sales/retail, lodging, parking, research, software development, and engineering spaces are excluded
- Property subject to the Alternative Depreciation System (ADS) is excluded
- Lessor note: if you’re a lessor, property used by a lessee does not satisfy your activity test
Timing Matters:
- Begin-construction window: After January 19, 2025, and before January 1, 2029
- Placed-in-service deadline: Before January 1, 2031
- Placed-in-service in the United States
- Original use generally begins with the taxpayer
Risk management:
- 10-year recapture: If a QPP area stops being used as an integral part of qualifying activity within 10 years, §1245 recapture may apply and the full deduction is recognized as ordinary income
- AMTI: Under current law, the QPP deduction is available for both regular tax and Alternative Minimum Taxable Income
- Consult with your tax advisor early. We work alongside your tax team to coordinate design, schedule, and cost coding so your election is supported by drawings, bid packages, and certificates of completion
- State conformity: Some states may decouple from federal QPP rules, so businesses with multi-state operations should verify state-level impact before filing
How an experienced GC makes QPP a reality:
Preconstruction Planning:
- Map eligible vs. excluded spaces early
- Design the “integral” systems cleanly
- Target the 95% de minimis threshold: if 95% or more of a building qualifies, the entire building may be treated as QPP
Schedule & Delivery:
- Align the project schedule with tax deadlines
- Document everything from day one
Recapture-Proofing the Layout:
- Plan for future operational changes to protect the 10-year commitment
Common project types → likely prong:
- Metal fab / machining / assembly: Manufacturing (production bays, line-integrated QC, process MEP in; offices/admin out)
- Electronics assembly: Manufacturing (SMT lines, ESD flooring, process HVAC in; dev labs/offices out)
- Food & beverage processing: Manufacturing (process rooms, clean utilities, in-line packaging in; retail taproom/front-of-house out)
- Pharma/biotech: Manufacturing and/or chemical production depending on step (GMP suites, WFI/clean steam in; R&D out)
- Chemical plants: Chemical production (reactors, tanks, pipe racks, control rooms integral to process in; corporate offices out)
- Refineries/smelters: Refining (process units/utilities in; training/office blocks out)
- Indoor ag/greenhouses: Agricultural production (grow rooms, fertigation, environmental controls in; sales/admin out)
- Standalone warehouses, distribution centers, and data centers generally don’t qualify because there is no qualifying production activity
What QPP Could Mean for Your Business: Three Real-World Scenarios
The numbers behind QPP are easier to understand when you see them applied to the types of projects manufacturers are actually planning. Here are three scenarios that reflect common expansion situations and how QPP could change the financial picture in each one.
| Scenario 1: Brand-New Production Facility – Ground-Up Construction |
| A mid-sized metal fabricator has outgrown its current plant and breaks ground on a new 60,000 sq. ft. production facility in early 2026. The facility is placed in service in late 2028. Total building cost: $8 million. The layout is intentional, with 90% dedicated to production floor, raw material receiving and storage, and essential process utilities. The remaining 10% is office space for plant supervisors and administrative staff. Under QPP, the 90% production-dedicated portion (roughly $7.2 million) is eligible for a 100% first-year deduction. Instead of spreading those deductions over 39 years, the company takes the full eligible amount in the year the facility is placed in service, generating significant immediate tax savings that can be reinvested into new equipment, additional staff, or other growth initiatives. The 10% office space continues under standard 39-year MACRS depreciation. One key design target worth noting: if 95% or more of a building’s physical space is used for production activity, the entire building may qualify. That means strategic layout decisions made early in design can expand the eligible deduction basis significantly. This is one of the most impactful planning steps a manufacturer can take, and it starts at the drawing board. |
| Scenario 2: Production Wing Addition to an Existing Facility |
| A plastics manufacturer needs more capacity and adds a 30,000 sq. ft. production wing to its existing plant. The addition is purely manufacturing space, including the production floor, in-process storage, and dedicated HVAC and electrical systems essential to the production process. Construction begins mid-2026 and the addition is placed in service in 2027. Total cost: $4.5 million. Because this addition is 100% production-dedicated, the full $4.5 million may be eligible for immediate expensing in year one. QPP allows manufacturers to immediately deduct 100% of the cost of certain elements of a manufacturing building in the same year it is placed into service, creating a meaningful cash flow benefit by dramatically reducing taxable income for that year. One important note: the QPP election is not automatically revocable. Once made, the IRS requires extraordinary circumstances to allow a reversal. That makes it critical to get space allocations, production activity characterization, and documentation right the first time. This is exactly where involving a Design+Build partner early pays dividends. |
| Scenario 3: Acquiring and Renovating an Idle Industrial Building |
| A packaging manufacturer purchases a vacant warehouse next door that has sat unused for years. They acquire it in 2026 for $2 million and invest $3 million in renovations, including new production-grade electrical systems, HVAC, flooring, and structural upgrades, converting it into a fully operational production facility placed in service in 2028. Total investment: $5 million. QPP also applies to certain existing facilities under the “unused property” exception. To qualify, the building must not have been used in any qualified production activity by any taxpayer during the period from January 1, 2021 through May 12, 2025. If the warehouse meets that standard, the full $5 million investment may be treated as QPP and eligible for 100% first-year expensing rather than a 39-year depreciation schedule. For many manufacturers, converting an existing building is faster and more cost-effective than building new. Under QPP, it can be equally tax-advantageous when the right conditions are met and documentation is in place from day one. |
| A Note on All Three Scenarios: If the property stops being used as an integral part of a qualified production activity at any time during the 10 years following its placed-in-service date, the full deduction amount is recognized as ordinary income. That is a significant consideration and one more reason why long-term facility planning should be part of any QPP conversation. These scenarios are illustrative. Always consult a qualified tax advisor to evaluate your specific facts and the §168(n) election. |
Try our QPP Calculator to see how a new facility or a building expansion could accelerate your-first depreciation under the Qualified Production Property Deduction
Owner checklist:
If you’re considering a 2026-2029 build or expansion, here’s a practical starting checklist:
- Confirm qualifying activity (manufacturing, refining, agricultural or chemical production)
- Map the building and designate production vs. excluded spaces intentionally
- Target the 95% de minimis threshold where feasible
- Align milestones to statutory windows (begin-construction; placed-in-service)
- Set up cost codes correctly from day one
- Plan commissioning and documentation to support the §168(n) election
- Coordinate with tax counsel / CPA before breaking ground
- Design with recapture in mind and commit to the 10-year window
Ready to build smarter?
If you are looking at an expansion or new facility in 2026 or beyond, the earlier QPP is on the table, the more options you have.
Eagan Building Group helps manufacturers and producers:
- Validate QPP opportunities alongside your tax team
- Design for clear QPP vs. non-QPP boundaries
- Schedule to meet begin-construction / placed-in-service windows
- Coordinate drawings, cost codes, and close-out documentation to support your election
Important disclaimer:
General information only, not tax advice. Consult your tax advisor about your specific facts and the §168(n) election. IRS Notice 2026-16 (released February 20, 2026) provides the first detailed federal guidance on QPP; additional IRS and Treasury guidance is still in progress. State conformity varies. Information current as of March 2026.
Further Reading:
Limited Benefit From Potential New Domestic Manufacturing Incentives
OB3 provides bonus depreciation, qualified production property: PwC
The One Big Beautiful Bill Breakdown: Qualified Production Property