Qualified Production Property (QPP): What We Know and What We Don’t

December 8, 2025

By: Daniel Higgins

Senior Manager, Tax

Key Takeaways

100% bonus depreciation available: QPP allows immediate expensing of qualifying nonresidential real property used in manufacturing, production, or refining—replacing the standard 39-year depreciation schedule.
Strict ownership requirements apply: The property owner and production operator must be the same taxpayer; lease arrangements and separate entity structures likely disqualify QPP treatment under current interpretations.
Construction timeline is narrow: Property must begin construction after January 19, 2025, and before January 1, 2029, with placement in service required before January 1, 2031.
10-year recapture rule creates risk: Early disposition of QPP triggers ordinary income recapture, requiring long-term commitment to the production use.
Bottom Line: QPP presents significant tax savings for manufacturers and producers, but structural decisions around ownership and leasing should be evaluated now—before IRS guidance clarifies remaining questions.

The One Big Beautiful Bill Act (OBBBA), signed into law earlier this year, introduced a powerful new tax incentive: Qualified Production Property (QPP). For manufacturers, chemical producers, and agricultural businesses, this provision could be a game-changer—allowing 100% bonus depreciation on qualifying real property. But while the opportunity is significant, the rules are complex, and many questions remain unanswered.

What Is QPP?

Under IRC §168(n), QPP refers to nonresidential real property used as an integral part of a qualified production activity—manufacturing, production, or refining tangible personal property that undergoes a substantial transformation. Key requirements include:

Construction Window: Begins after January 19, 2025, and before January 1, 2029.
Placed in Service: Before January 1, 2031.
Original Use: Must begin with the taxpayer.
Location: Must be in the U.S.
Ownership: Property must be owned and used by the taxpayer for production activities (leaseholders are excluded).
Exclusions: Offices, administrative areas, parking, R&D, and retail food prep areas do not qualify.

If eligible, QPP allows 100% immediate expensing—a dramatic shift from the traditional 39-year depreciation schedule.

The Big Questions

Lease-Purchase Options: Will They Qualify? The current consensus is no; properties under lease arrangements, even with purchase options, do not qualify for QPP treatment.

Holding Property in a Separate Entity: What Are the Risks? Many businesses separate real estate ownership from operations for liability or financing reasons. Under current interpretations, this structure disqualifies QPP because the owner and operator must be the same taxpayer.

Allocation Challenges: Which Areas Qualify? Only production-related areas count. Office space, administrative functions, and parking are excluded. Warehousing linked directly to production may qualify, but standalone distribution centers likely do not.

Previously owned property: How can it be proven that the property was not in production between the specified dates?

Planning Considerations

Tread cautiously and model all scenarios. With year-end approaching, taxpayers may be looking to make these decisions in the coming weeks, when information is not readily available. Taxpayers will need to be aware of the significant fluctuation in depreciation expense, whether their specific situation qualifies as QPP or not.

Cost Segregation is still helpful. While QPP is eligible for 100% bonus depreciation, most states will benefit from a segregation study to move the assets into smaller lives.

Watch for Recapture: QPP must be used for 10 years post-placement; early disposition triggers ordinary income recapture.

What’s Next?

The IRS is expected to release regulations clarifying: Whether certain lease structures or related-party arrangements can qualify; How to define ‘substantial transformation’ for production activities; Allocation rules for mixed-use facilities.

Key Takeaways

The Qualified Progress Expenditure (QPP) provision delivers substantial tax savings for eligible businesses. However, maximizing these benefits requires careful attention to ownership and operational structures.

Companies exploring lease-purchase arrangements or separate entity ownership face potential disqualification from QPP treatment. Additional IRS guidance is expected to provide clarity on these structural requirements.

Businesses should prioritize detailed cost segregation analysis and proactive tax planning now to position themselves for maximum QPP benefits as regulatory guidance evolves.

Contact Wiss experts to evaluate your QPP eligibility and develop a strategic implementation plan before the next filing deadline.