The One Big Beautiful Bill(OBBB), enacted on July 4, 2025, represents a comprehensive legislative effort to reshape various aspects of United States economic policy, with a notable focus on bolstering domestic manufacturing. A significant component of this initiative is the introduction of new provisions related to Qualified Production Property (QPP), primarily through enhanced bonus depreciation allowances.
Understanding Qualified Production Property (QPP) under OBBB
Under the OBBB, Qualified Production Property (QPP) is defined as nonresidential real property, i.e., any permanent structure, that is used as an integral part of a “qualified production activity.” This marks a significant expansion, as bonus depreciation has historically been applied primarily to tangible personal property, not real estate.
Key characteristics and eligibility criteria for QPP under OBBB include:
- Integral Use: The property must be used as an integral part of manufacturing, production, or refining tangible personal property.
- Exclusions: The definition specifically excludes portions of nonresidential real property used for functions unrelated to qualified production activities, such as offices, administrative services, lodging, parking, sales activities, research activities, software development, or engineering activities.
- Qualified Production Activity (QPA): A QPA generally refers to the manufacturing, production, or refining of a “qualified product.” The activities of the taxpayer must result in a substantial transformation of the property comprising the product. A qualified product is defined as tangible personal property, with an explicit exception for certain food and beverage products prepared in the same building that houses a retail outlet selling those products.
- Domestic Requirement: The property must be placed in service in the U.S. or its possessions.
- Original Use: The original use of the property must commence with the taxpayer claiming the deduction. However, certain exceptions apply for property not used in a QPA since Jan. 1, 2021.
- Construction Start Date: Construction of the QPP must begin after Jan. 19, 2025, and before Jan. 1, 2029.
- Placed-in-Service Date: The property must be placed in service before Jan. 1, 2031.
- Election: Taxpayers must make an election to designate such property as QPP to claim the deduction.
- Leased Property Restrictions: QPP does not apply to leased property or property acquired through a related-party transaction.
- Recapture: QPP must be used in a QPA for a period of 10 years after it is placed in service, or it will be subject to recapture rules.
New Bonus Depreciation for QPP
The most impactful provision for QPP under the OBBB is the 100% bonus depreciation allowance. This allows taxpayers to immediately deduct the full adjusted basis of eligible QPP in the year it is placed in service. This is a substantial change from previous tax laws, where bonus depreciation was phasing down and generally did not apply to nonresidential real property.
Broader Context and Impact
The introduction of 100% bonus depreciation for QPP is a direct response to the administration’s goal of encouraging manufacturing within the United States. By allowing immediate expensing of significant capital investments in production facilities, the OBBB aims to improve cash flow for businesses and stimulate investment in domestic manufacturing infrastructure.
This provision is part of a larger package of business tax changes within the OBBB, which also includes:
- Permanent restoration of 100% bonus depreciation for other eligible property (generally tangible personal property with a recovery period of 20 years or less) acquired and placed in service after Jan. 19, 2025.
- Increased Section 179 expensing limits to $2.5 million (with a phase-down threshold of $4 million) for taxable years beginning after Dec. 31, 2024.
- Permanent restoration of expensing for domestic research and experimentation (R&E) expenditures for tax years beginning after Dec. 31, 2024.
- Modifications to the Section 163(j) business interest expense limitation, reverting to an EBITDA-based calculation.
Your Takeaway
The new QPP provisions in the OBBB represent a significant tax incentive for businesses engaged in domestic manufacturing, production, and refining. By allowing 100% bonus depreciation for eligible nonresidential real property used in these activities, the OBBB seeks to drive capital investment and foster growth in the U.S. manufacturing sector. Businesses considering new construction or significant improvements to their production facilities should carefully evaluate these provisions to maximize their tax benefits.
Anthony Licavoli is the director of tax consulting and part of Rehmann’s manufacturing group, which boasts specialists with experience investigating and analyzing incentives for manufacturers. Please reach out to your Rehmann advisor or contact Anthony directly at [email protected] for more information on these incentives.