Since the passage of the One Big Beautiful Bill Act (OBBBA) in July of 2025, RBT has been covering its impacts on the real estate industry. Among the most notable provisions of the new tax law is the restoration of 100% bonus depreciation—a change that benefits businesses across various industries. The OBBBA also extends 100% bonus depreciation to a new category of property known as “qualified production property.” So, what are the rules regarding qualified production property, and what are the implications of this new incentive for the real estate industry? Let’s get into it.
Qualified production property (QPP), according to section 168(n) of the One Big Beautiful Bill Act, is defined as that portion of any nonresidential real property which:
- Is used by the taxpayer as an integral part of a qualified production activity
- Is placed in service in the U.S. or any possession of the U.S.
- The original use of which commences with the taxpayer
- The construction of which begins after January 19, 2025 and before January 1, 2029
- Is designated by the taxpayer in the election
- Is placed in service before January 1, 2031
“Qualified production activity” is defined as the manufacturing, production, or refining of a qualified product resulting in a “substantial transformation” of the property comprising the product. Note that taxpayers are required to make an affirmative election to claim the QPP deduction (unlike bonus depreciation, which is typically applied automatically for qualified property).
Certain types of property are excluded from the definition of qualified production property and are therefore ineligible for the new deduction. Ineligible property includes:
- Leased property
- Any portion of nonresidential real property which is used for offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities, or other functions unrelated to the manufacturing, production, or refining of tangible personal property.
In general, the deduction applies to new construction. However, the provision includes a special rule for acquired qualified production property, which provides an exception to the “original use” requirement if certain conditions are met (see Section 168(n) for these conditions).
Also note that QPP must be used as part of a qualified production activity for at least 10 years after it is placed in service to remain eligible for the deduction. If the property is disposed of or ceases to be used as an integral part of a qualified production activity during this time, any depreciation previously claimed is subject to recapture.
Key Takeaways for the Real Estate Industry
- Eligible taxpayers can now immediately deduct 100% of the cost of qualified production property, instead of following the typical 39-year depreciation schedule for nonresidential real property, which may significantly increase cash flow.
- Taxpayers must maintain qualified use for the property for at least 10 years to benefit from the deduction.
- To claim the deduction, taxpayers must make an affirmative election for each tax year. This election is irrevocable.
- Further guidance is expected from the IRS and the Treasury regarding the application of the QPP rule.
- Real estate investors and developers should consult with a tax professional for help interpreting the various provisions of the rule and to discuss eligibility for the QPP deduction.
Questions?
RBT CPAs’ real estate accounting team is here to answer your questions regarding the new tax rules and to support all of your other tax, accounting, audit, and advisory needs. Give us a call today and find out how we can be Remarkably Better Together.