Qualified Production Property Deduction - 5 Things You Should Know

The One Big Beautiful Bill Act (the “Bill”) signed into law on July 4, 2025, brought sweeping changes to the tax landscape for businesses. Among its most impactful provision is the introduction of a new Section 168(n) to the Internal Revenue Code for 'Qualified Production Property'.

Here are five key things you should know about this important tax incentive:

1. 100% Depreciation for Qualified Production Property

Section 168(n) allows taxpayers to fully deduct the cost of certain real property used in the manufacturing, production, refining, or substantial transformation of tangible personal property in the year the qualified production property is placed in service.

This marks a significant expansion of immediate expensing, as real property has traditionally not qualified for bonus depreciation at this level.

Note: This provision is elective—taxpayers must actively choose to apply it.

2. Who may benefit from this provision

This tax provision is broadly available to taxpayers who own or use real property in the production of tangible personal property.

Industries that may benefit most include:

• High-tech fabrication plants (e.g., semiconductor, robotics manufacturing)

• Manufacturing companies (e.g., automotive, electronics, textiles, food processing)

• Pharmaceutical and biotechnology facilities

• Chemical production plants

• Mining and mineral processing operations

• Large-scale agricultural processors (e.g., grain milling, meat packing)

• Beverage and bottling plants

  
  

These industries typically invest heavily in specialized real property essential to their operations. The ability to fully expense these costs in the year placed in service may offer a substantial tax incentive and cash flow advantage.

The real estate and construction industries are likely to indirectly benefit by the boost in demand for real estate and construction.

There are no restrictions on taxpayer type—corporations, partnerships, and individuals may all qualify if the property meets the eligibility and use requirements. This presents opportunities for incorporating strategic planning into your investment structure to further optimize overall investment returns.

3. Effective Date and Applicability

The qualifying production property must meet specific acquisition or construction timing requirements:

• Acquired after January 19, 2025 (and not under a binding contract in effect before that date) and before January 1, 2029

• Original use must begin with the taxpayer (with limited exceptions)

• Self-constructed property must begin construction after January 19, 2025, and before January 1, 2029

• Placed in service in the U.S. before January 1, 2031

  
  

4. Special Rules, Limitations, and Exceptions

This provision applies only to non-residential real property located in the U.S.

There are recapture rules if the property is disposed or it ceases to meet the qualified production use within 10 years of being placed in service.

Exclusions apply to portions of buildings used for:

• Offices

• Administrative functions

• Lodging

• Parking

• Sales

• Research

• Software development

• Other unrelated activities

Given these detailed requirements, businesses should carefully evaluate property eligibility during both planning and implementation to ensure compliance.

5. Compliance and Tax Planning Considerations

To elect to Section 168(n), taxpayers are required to make a timely and irrevocable election on their tax return. Proper documentation is essential to support eligibility and calculations.

While the accelerated depreciation offers significant upfront tax benefits, it also reduces future deductions and may impact:

• Net operating losses (NOLs)

• Section 199A deductions

• Other tax attributes

  
  

Also, state conformity varies—not all states follow federal accelerated depreciation rules.

Before electing to Section 168(n), you should carefully consider your long-term business objectives and current tax attributes to determine whether the provision will deliver the desired outcomes for your business.

How We Can Help

Section 168(n) offers a powerful new tool for businesses investing in production-related real property. However, it comes with important rules and planning considerations.

A thorough review of eligibility, compliance requirements, and long-term tax impact is essential to manage costs and optimizing benefits.

At illumina CPA Group, we can support you in evaluating business strategies, investment structures, optimizing planning outcomes with tax strategies, and meeting your tax reporting and compliance obligations for 2025 and beyond.

For more information, contact us. 

Disclaimer

The contents of this insight are intended for general information only. illumina CPA Group, Inc. is not, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.

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