Qualified production property
Finally, of note for maximizing depreciation, the act adds Sec. 168(n), which establishes a new category of property eligible for 100% bonus depreciation — qualified production property (QPP). The new provision offers a significant tax benefit to taxpayers investing in qualified manufacturing, production, or refining facilities in the United States.
QPP is defined as any portion of nonresidential real property that meets the following criteria:
- It is an integral part of a qualified production activity;
- It is placed in service in the United States (or a U.S. possession);
- The original use of the property commences with the taxpayer;
- The construction of the property begins after Jan. 19, 2025, and before Jan. 1, 2029;
- It is placed in service before Jan. 1, 2031; and
- The taxpayer makes an election to treat the property as QPP.
The term “qualified production activity” means the manufacturing, production, or refining of a qualified product. The term “qualified product” means any tangible personal property that is not a food or beverage prepared in the same building as a retail establishment in which such property is sold. The activity must also result in a substantial transformation of the property comprising the product.
QPP does not include the portion of any nonresidential real property that 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. QPP also does not include any property to which the alternative depreciation system under Sec. 168(g) applies.
This provision could be especially significant in 2025 and beyond for companies considering the expansion of production facilities. Where there may have previously been consideration to expand operations overseas, this new provision shifts the focus toward manufacturing in the United States. Businesses should evaluate whether investing in U.S.-based facilities makes sense for their business and understand that making the required election allows them to fully benefit from the deduction for the full cost of domestic manufacturing facilities.
In short, all revised and expanded depreciation rules under the act present an opportunity to receive a substantial deduction in the year of QPP acquisition and should be used strategically to minimize taxes.