QIP and QPP differ: qualified improvement property (§168(e)(6)) is 15-year interior work on nonresidential buildings, excluding enlargements, elevators, escalators and internal structural framework; qualified production property (§168(n)) is an elective full deduction for a production building begun after Jan. 19, 2025 and before 2029 and placed in service after July 4, 2025 and before 2031. Cost segregation allocates between them.
Why Do People Confuse QIP and QPP?
Qualified Improvement Property and Qualified Production Property share three letters, both live in Section 168, and both can sharply accelerate a deduction that a cost segregation study measures. But they are not variations on a theme: QPP requires construction to begin after Jan. 19, 2025 and before Jan. 1, 2029, and the property to be placed in service after July 4, 2025 and before Jan. 1, 2031.
QIP asks what did you change about the inside of a building. QPP asks what do you produce in the building. One is an improvement category; the other is a use category. Confusing them leads to either a missed deduction or an overreach, so it helps to put them side by side.
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The Core Difference
| QIP — Qualified Improvement Property | QPP — Qualified Production Property | |
|---|---|---|
| Statute | §168(e)(6) | §168(n) (added by the One Big Beautiful Bill Act) |
| What it covers | Interior, non-structural improvements to an existing nonresidential building | The nonresidential real property (the building itself) used as an integral part of a qualified production activity |
| The benefit | 15-year recovery (straight-line), bonus-eligible under §168(k) | Elective 100% deduction in the placed-in-service year |
| Who it fits | Any owner who renovates a commercial interior — offices, retail, restaurants, tenant build-outs | Manufacturers, processors, refiners building production facilities |
| Key timing | Placed in service after the building was; bonus rate set by the in-service year | Construction begins after Jan. 19, 2025 and before Jan. 1, 2029; placed in service after July 4, 2025 and before Jan. 1, 2031 |
| Residential? | No — nonresidential only | No — nonresidential only |
| Election? | 15-year is automatic; bonus applies unless you elect out | The 100% allowance is elective; recapture applies if the property stops being used in a qualified production activity within 10 years after it is placed in service |
How Do You Tell QIP and QPP Apart?
QIP is about improvements — it exists because you renovated the interior of a building that was already in service. It reaches drywall, ceilings, interior lighting, finishes, interior doors, and similar non-structural interior work. It never reaches the structural framework, an enlargement, or elevators and escalators.
QPP is about the structure used for production — it exists because the building (or the part of it) is integral to manufacturing, producing, or refining a product. It reaches the shell and long-lived real property that cost segregation could never accelerate before, but only for the production-integral portion, and only inside a narrow construction-and-in-service window.
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Can QIP and QPP Both Apply to One Building?
A manufacturer that constructs a new plant after Jan. 19, 2025 and then builds out interior office and lab space has both categories on the table at once: the production-integral portion of the structure may be QPP eligible for the elective 100% deduction, while qualifying interior improvements may be QIP at 15 years and eligible for bonus depreciation as it applies to real estate owners in 2026. They do not compete — they apply to different square footage and different components. The job is to allocate the building correctly so each dollar lands in the category that fits it.
Why Is Telling QIP From QPP an Allocation Problem?
Both categories live or die on a clean allocation of the building. QIP requires separating interior, non-structural improvement from structure, enlargement, and excluded systems. QPP requires separating production-integral real property from office, storage, and site work. Neither is a label you can read off an invoice — both are conclusions you reach by walking the construction record component by component and area by area. That is the work a cost segregation study does (how far a provider takes that component-by-component allocation is one of the main ways cost segregation firms compare), and it is why, in a world with both QIP and QPP on the books, the engineering allocation matters more, not less.
Not sure which door your building fits through? Start a study and the component-level allocation will answer it — or estimate the stakes first on the calculator.
Related reading on the same mechanic: how the January 19, 2025 acquired-date test sets a bonus depreciation rate and what a partial asset disposition does when a renovation removes existing building components.
Frequently Asked Questions
What is the difference between QIP and QPP depreciation?
QIP asks what you changed about the inside of a building, while QPP asks what you produce in it — one is an improvement category under §168(e)(6), the other a use category under §168(n). QIP covers interior, non-structural improvements to an existing nonresidential building and carries a 15-year straight-line recovery period that is bonus-eligible under §168(k). QPP covers the nonresidential real property used as an integral part of a qualified production activity and allows an elective 100% deduction in the placed-in-service year.
Can the same building qualify for both QIP and QPP depreciation in the same year?
Yes — a manufacturer that constructs a new plant after Jan. 19, 2025 and then builds out interior office and lab space can have both categories on the table at once. They do not compete, because they apply to different square footage and different components: the production-integral portion of the structure may be QPP eligible for the elective 100% deduction, while qualifying interior improvements may be QIP at 15 years and bonus. A cost segregation study is what allocates the building so each dollar lands in the category that fits it.
Does QIP or QPP apply to residential rental property?
Neither one does — both categories are nonresidential only. An apartment renovation is outside QIP, and QPP reaches only nonresidential real property used as an integral part of a qualified production activity.
What timing rules separate QIP from QPP?
QIP must be placed in service after the building itself was, and the bonus rate that applies is set by the in-service year. QPP requires that construction begin after Jan. 19, 2025 and that the property be placed in service before Jan. 1, 2031, and the 100% allowance is elective with recapture applying if the property stops being used in a qualified production activity within 10 years after it is placed in service.
Why does a cost segregation study matter for QIP and QPP?
Both categories live or die on a clean allocation of the building, and neither is a label you can read off an invoice. QIP requires separating interior, non-structural improvement from structure, enlargement and excluded systems, while QPP requires separating production-integral real property from office, storage and site work — conclusions you reach by walking the construction record component by component. That is the work a cost segregation study does, which is why, with both QIP and QPP on the books, the engineering allocation matters more rather than less.
Sources: IRS Notice 2026-16 (§168(n) QPP); BDO — OBBBA expands 100% depreciation expensing.
