This article is educational and is not legal or tax advice. Every provision below is fact-specific and date-sensitive — confirm any position with your tax advisor before you act.
A Year On From July 4, 2025
The One Big Beautiful Bill Act (OBBBA) — the tax package many now shorthand as OB3 — was signed into law on July 4, 2025. A year is long enough to separate the headlines from the provisions that actually moved decisions. For owners of commercial buildings, industrial facilities, and rental real estate, three changes have done the most work: the permanent return of 100% bonus depreciation under §168(k), the entirely new Qualified Production Property election under §168(n), and the permanent §174 fix that restored immediate expensing of domestic research.
But the single most consequential change is not any one line of the code. It is a shift in timing. Specialty tax planning that used to happen after a project was finished — a study ordered once the building was in service — now belongs at the design and budget stage. This post walks through what changed, and why the planning conversation moved upstream.
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1. 100% Bonus Depreciation Is Permanent Again — With a Date Test
Under §168(k), OB3 permanently restored 100% first-year bonus depreciation for qualified property, reversing the TCJA phase-down that had been dropping the rate toward zero. Qualified property means assets with a recovery period of 20 years or less — the 5-, 7-, and 15-year personal property and land improvements a cost segregation study isolates, plus Qualified Improvement Property.
The catch is the date test, and it matters enormously. The permanent 100% rate applies to property acquired after January 19, 2025 — or, for property you build yourself, property whose construction began after January 19, 2025. Property acquired, or self-construction begun, on or before January 19, 2025 stays on the old TCJA phase-down keyed to the placed-in-service year: 40% for 2025 and 20% for 2026.
Two identical buildings can carry very different first-year deductions. The one whose acquisition or construction start falls after January 19, 2025 reaches 100% bonus; the one that crossed that line a day earlier is capped at the phase-down rate for its placed-in-service year. — Reference framing of IRC §168(k) as amended by OBBBA
For cost segregation, the practical effect is a revival. During the phase-down years, plenty of studies "didn't pencil" — at 40% or 20% bonus, the acceleration on the short-life buckets was muted, and some owners deferred the work. At a permanent 100%, every dollar a study reclassifies into a ≤20-year bucket can be expensed in year one. The studies that looked marginal in 2024 look very different now. (Eligibility turns on the acquired/begun date and per-component classification — this is not a universal write-off. More on that below.)
QIP Rides Along
Qualified Improvement Property (QIP) — interior improvements to the inside of an existing nonresidential building — is 15-year property and therefore §168(k)-eligible, so it reaches 100% bonus under the same rules. QIP excludes building enlargements, elevators and escalators, and work on the internal structural framework. A study that separates true interior improvement work from those excluded categories is what supports the QIP treatment.
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2. Qualified Production Property — The Shell Itself, Expensed
This is the genuinely new idea in OB3, and for facility owners it may be the most important. New §168(n) creates an election to immediately deduct 100% of the unadjusted basis of a portion of domestic nonresidential real property used as an integral part of a qualified production activity — manufacturing, production, or refining that substantially transforms a qualified product.
Read that carefully, because it breaks a rule that has held for as long as most of us have practiced: for the first time, part of the building shell — not just the short-life components a study carves out — can be fully expensed in the first year. Traditionally the 39-year structure was the one bucket you could never accelerate. Qualified Production Property (QPP) puts the production portion of that shell in scope.
The Guardrails
The election is tightly bounded, and the boundaries are where the analysis lives:
- Timing — construction. Construction must begin after January 19, 2025 and before January 1, 2029.
- Timing — placed in service. The property must be placed in service after July 4, 2025 and before January 1, 2031.
- Use — what counts. Only space that is an integral part of the qualifying production activity. The statute excludes office, administrative, lodging, parking, sales, research, and software/engineering space. A plant floor may qualify; the front-office wing generally does not.
- Recapture — the string attached. There is a 10-year recapture. If the property is disposed of, or simply ceases to be used in the qualified production activity, within 10 years of being placed in service, the benefit is recaptured as ordinary income. QPP is a commitment to keep producing, not just to build.
Qualified Production Property lets a taxpayer elect to expense 100% of the unadjusted basis of the production-integral portion of a domestic nonresidential building, subject to construction and placed-in-service windows and a ten-year ordinary-income recapture if the production use ends. — Reference summary of IRC §168(n)
From Theory to Practice: Notice 2026-16
For the first year, QPP lived largely on paper — a powerful election with open questions about how it applied to real ownership structures. IRS Notice 2026-16 moved it from theory to practice, adding guidance that includes how the rules reach certain third-party leasing and holding-and-operating-company arrangements. That matters because so many production facilities are held in one entity and operated by another; the guidance helps owners in those structures analyze whether the election is available to them. As always, the determination is fact-specific — this is an area to review carefully with your advisor before relying on it.
Where Cost Segregation Fits QPP
QPP does not replace a cost segregation study — it depends on one. To make the election you have to measure the production-integral portion of the building and separate it from the excluded office, sales, and administrative space, then support that allocation with an engineering-principles-based analysis of the components and areas involved. Isolating the QPP-eligible shell, the ≤20-year components eligible for 100% bonus, and the remaining 39-year structure is exactly the kind of component-level breakdown a study produces.
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3. The §174 R&D Fix
OB3 permanently repealed the TCJA-era requirement to amortize domestic research costs over five years and restored immediate expensing of domestic research under §174. That mandatory-amortization rule had quietly raised taxable income for engineering-heavy and product-developing businesses since 2022. Small businesses were also given a window to recover the 2022–2024 amortization they had been forced to spread out — that catch-up window has since closed.
Why include §174 in a cost segregation retrospective? Because the same taxpayers building qualified production facilities are frequently the ones running domestic research. When a manufacturer designs a plant, the engineering that goes into the product and process and the engineering that goes into the building are related but taxed under different sections. Coordinating §174 research expensing, §168(n) QPP, and §168(k) bonus in a single project is the kind of stacking that only works if someone is looking at all three at once.
Don't Miss the Clock on §179D
One provision is moving the other direction, and it has a hard edge. The §179D energy-efficient commercial buildings deduction is set to sunset on June 30, 2026 — it is unavailable for property that begins construction after that date. Projects begun on or before June 30, 2026 can still pursue it. If an efficient building is on your near-term board, the construction-start date is the line that decides whether §179D is on the table at all.
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The Real Change: Planning Moved to the Design Table
Step back from the individual sections and a pattern emerges. Every one of these provisions turns on a date and a use that are fixed early — the acquisition or construction-start date for bonus, the construction and placed-in-service windows for QPP, the production-versus-office split that governs the QPP allocation, the June 30, 2026 line for §179D. By the time a building is finished, those facts are already set. You cannot move a construction-start date after the fact.
That is why the specialty-tax conversation has moved upstream. A year ago, the typical cost segregation engagement started after the ribbon cutting. Today, the highest-value work happens at the design and budget stage, where the building's layout still influences how much of the shell can qualify for QPP, where the construction schedule can be reviewed against the bonus and §179D date tests, and where the engineering, tax, and finance teams can actually see the same plan. The value now comes from connecting those three disciplines while the design is still on the screen.
A Word of Caution
"100% bonus is back" and "you can expense the building now" are easy to over-read. Neither is a universal write-off. Bonus depreciation still depends on the acquired-or-begun date test and on per-component classification — a study still has to establish which dollars belong in a ≤20-year bucket. QPP is an election with tight construction and placed-in-service windows, an office/administrative exclusion, and a 10-year ordinary-income recapture that can reverse the benefit if the production use ends. These are powerful tools used precisely, not blanket deductions. Every number depends on your facts, your dates, and your advisor's review.
The Bottom Line
One year after it was signed, OB3's most impactful pieces for facility owners are clear: permanent 100% bonus depreciation revived studies that had stopped penciling during the phase-down; Qualified Production Property put part of the building shell in scope for the first time; and the §174 fix restored immediate expensing for the research-heavy businesses that build those facilities. The through-line is timing — the planning that captures this value has to happen while the project is still being designed and budgeted. ClickDrag builds studies on a component-level foundation designed for exactly that kind of early, cross-disciplinary planning, connecting the engineering, the tax sections, and the finance in one analysis. Coordinate every election and allocation with your tax advisor before you rely on it.
Planning a build or a major improvement now? Estimate the depreciation side on our free calculator, then start your study while the design is still in motion.
