This article is educational and is not tax or legal advice. Eligibility for either category turns on specific facts and dates — confirm your treatment with your tax advisor.
The Confusion Is Understandable
Qualified Improvement Property and Qualified Production Property share three letters, both live in Section 168, and both can sharply accelerate a deduction. But they are not variations on a theme.
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; placed in service 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 production use stops |
The Cleanest Way to Tell Them 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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They Can Both Be in Play
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 bonus. 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 This Is 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, 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.
Sources: IRS Notice 2026-16 (§168(n) QPP); BDO — OBBBA expands 100% depreciation expensing.
