The One Big Beautiful Bill Act (OBBBA), signed into law this past July, includes a focused but highly valuable new tax provision that could dramatically reshape the financial landscape for specific businesses constructing new facilities. This potentially game-changing provision concerns Qualified Production Property (QPP), a category of real property eligible for immediate expensing when used in the manufacturing, production or refining of agricultural or chemical products .
This isn’t a broad tax break – it’s a precise incentive aimed at boosting domestic production in these key sectors. Let’s take a closer look at the new provision and how it helps owners of these types of businesses.
What Qualifies?
While the IRS still needs to issue formal guidance clarifying the provision, the OBBBA defines QPP as nonresidential real property used directly for production activities in which a qualified product undergoes a substantial transformation. To qualify, the property must meet all of the following criteria:
- Original use: Generally, only newly constructed facilities qualify.
- Construction window: Must begin after January 19, 2025, and before January 1, 2029.
- Placed-in-service: Must be operational by January 1, 2031.
- Location: Must be in the United States.
- Ownership: Must be owner-occupied for the production activity (leaseholders are excluded from the benefit).
- Depreciation Method: Must not be subject to the Alternative Depreciation System (ADS).
In addition, only the portions of a building specifically dedicated to production activities qualify. Supporting areas such as offices, retail space, parking lots or those conducting research and development are excluded. Importantly, structures where food or beverages are prepared and sold at retail within the same building are also excluded. Click here for examples of structural components of a building that could qualify as QPP.
What’s the Benefit?
If eligible, QPP receives 100% bonus depreciation, allowing the full building construction costs to be deducted in the year it’s placed in service – rather than depreciated over decades. Though only certain industries are included in this provision, the tax savings can be substantial if a new plant is constructed within the United States and is designed in a way that maximizes the production areas. The challenge, and the opportunity, lies in identifying, properly allocating and documenting the specific costs in those areas that qualify as QPP. This is where a strategic approach to cost segregation becomes indispensable.
The Critical Role of Cost Segregation
The QPP provision is an incredible opportunity, but maximizing it requires a clear, defensible breakdown of building components. A detailed cost segregation study accurately identifies and substantiates the costs eligible for this 100% immediate deduction. While cost segregation traditionally accelerates depreciation for shorter-life assets (such as site improvements or specialized electrical systems), its role is now expanded: it provides the necessary, engineering-based analysis to definitively separate the QPP-eligible building costs (100% bonus) from the non-eligible building costs (standard 39-year depreciation).
How CRS Can Help
The OBBBA’s QPP provision offers unprecedented tax savings for companies in the agricultural and chemical sectors planning new domestic construction. Ignoring this opportunity is leaving significant cash on the table.
If you (or your client) are planning to build a new facility that falls within the OBBBA’s construction window and production scope, now is the time to engage a CRS cost segregation specialist. We can partner with your design and construction teams early in the process to ensure your facility is maximized for this tax benefit and, most importantly, to perform the detailed engineering study necessary to prove your property qualifies for the new incentive.
Unfortunately, the IRS has not yet published a detailed list of every qualifying product or production activity. Additionally, there are other special rules concerning ownership, election, depreciation recapture and qualifying existing properties that a taxpayer should consider before deciding to use the QPP incentive. CRS will monitor the IRS updates and can work with you or your tax professional to clarify the OBBBA rules, helping to turn the new QPP provision into immediate, substantial tax savings for your business.
