The Part of a Building You Could Never Accelerate
Cost segregation has always been able to carve faster-depreciating components — 5-, 7-, and 15-year property — out of a building. What it could never do was accelerate the structure itself: the shell, the framework, the long-lived real property that anchors most of the cost.
For nonresidential real property that has always meant 39 years of straight-line depreciation. Qualified Production Property (QPP) changes that for a specific, important class of buildings.
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What Is the §168(n) Qualified Production Property Allowance?
The One Big Beautiful Bill Act added IRC §168(n), creating an elective 100% depreciation allowance for Qualified Production Property. In plain terms, QPP is the portion of nonresidential real property used as an integral part of a qualified production activity — generally, the factory or plant building in which manufacturing, production, or refining happens. Where it applies, a taxpayer may elect to deduct 100% of the property's basis in the year it is placed in service, rather than recovering it over 39 years.
This is a genuinely different lever than bonus depreciation as it stands for real estate owners in 2026. Bonus has always excluded real property like the building structure. QPP reaches the structure itself — but only for property tied to production.
Is Qualified Production Property Available to Every Building?
QPP is deliberately narrow. Drawing on the statute and the interim guidance in IRS Notice 2026-16, the core requirements are:
- Qualified production activity (QPA). The property must be used in the manufacturing, production, or refining of a qualified product that results in a substantial transformation — the inputs become a final, distinct item fundamentally different from the raw materials. Storage, distribution, and most office or administrative space do not qualify.
- Timing. Construction of the property must begin after Jan. 19, 2025 and before Jan. 1, 2029, and the property must be placed in service after July 4, 2025 — the OBBBA enactment date — and before Jan. 1, 2031.
- Election. The 100% allowance is elective — the taxpayer chooses it for the placed-in-service year. Notice 2026-16 sets out the election mechanics.
- Recapture. Because the benefit is large, there are recapture rules if the property stops being used in a qualified production activity within a defined period. The deduction is not unconditional once taken.
Notice 2026-16 is interim guidance, and taxpayers may rely on it until proposed regulations are issued. That reliance window is exactly when careful documentation pays off.
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Why Cost Segregation Still Matters — Maybe More
It would be easy to assume that 100% on the whole building makes component-level analysis irrelevant. The opposite is closer to the truth. QPP applies to the portion of the real property used as an integral part of the qualified production activity — not necessarily the entire building. A facility usually mixes production floor with office, storage, parking, and site work. Sorting the qualifying production real property from the non-qualifying remainder, and separately identifying the personal property and land improvements that follow their own faster schedules, is precisely the kind of square-footage-and-component allocation a cost segregation study produces (scope and engineering depth vary by provider, which is what how cost segregation firms compare sets out). The study becomes the support for how much of the building is QPP.
Who Should Be Paying Attention to QPP?
If you are building or substantially constructing a manufacturing, processing, or refining facility with a construction start after Jan. 19, 2025 and before Jan. 1, 2029, and an in-service date after July 4, 2025 and before Jan. 1, 2031, QPP may let you deduct the qualifying production portion of the structure in full in year one — an outcome that simply did not exist before.
The analysis is fact-intensive: what is the production activity, which areas are integral to it, when did construction begin, and is the election the right call given the recapture exposure. Those are answerable questions, and the documentation to answer them is the same engineering record an industrial cost segregation study builds.
Planning a production facility? Start a study with your construction budget and drawings, and the same component record will support both the QPP allocation and your depreciation schedule.
Related reading on the same mechanic: how QIP and QPP differ under §168 and what a partial asset disposition does when a renovation removes existing building components.
Frequently Asked Questions
Can the factory building itself be depreciated in year one under §168(n)?
Where Qualified Production Property applies, a taxpayer may elect to deduct 100% of the property's basis in the year it is placed in service rather than recovering it over 39 years. QPP is the portion of nonresidential real property used as an integral part of a qualified production activity — generally the factory or plant building in which manufacturing, production or refining happens. That reaches the structure itself, which cost segregation could never accelerate before.
How is Qualified Production Property different from bonus depreciation?
Bonus depreciation has always excluded real property like the building structure, while QPP reaches the structure itself — but only for property tied to production. That makes §168(n) a genuinely different lever rather than an extension of the bonus rules.
What construction and in-service dates does Qualified Production Property require?
Construction of the property must begin after Jan. 19, 2025, and the property must be placed in service before Jan. 1, 2031. Both dates come from the statute and the interim guidance in IRS Notice 2026-16, which taxpayers may rely on until proposed regulations are issued.
Is the elective 100% QPP deduction subject to recapture?
Yes — because the benefit is large, recapture rules apply if the property stops being used in a qualified production activity within a defined period, so the deduction is not unconditional once taken. Whether the election is the right call therefore depends in part on that recapture exposure.
Does a cost segregation study still matter when QPP allows 100% in year one?
It matters more, because QPP applies to the portion of the real property used as an integral part of the qualified production activity — not necessarily the entire building. A facility usually mixes production floor with office, storage, parking and site work, and a cost segregation study is what sorts the qualifying production real property from the non-qualifying remainder while separately identifying the personal property and land improvements that follow their own faster schedules. The study becomes the support for how much of the building is QPP.
Sources: IRS Notice 2026-16 (interim guidance, §168(n)); PwC — Notice provides framework for new QPP depreciation election.
