Qualified Production Property for Depreciation

Qualified production property (QPP) is a new class of nonresidential real property eligible for 100% expensing rather than the standard 39-year depreciation, effective for property placed in service after July 4, 2025 [1].

Requirements:

To qualify, the property must meet all of the following conditions [1]:

1. Used by the taxpayer as an integral part of a qualified production activity in the United States or its possessions
2. Original use must commence with the taxpayer
3. Construction must begin after January 19, 2025, and before January 1, 2029
4. Taxpayer must elect to expense the property
5. Property must be placed in service before January 1, 2031

Qualified Production Activity:

This means manufacturing, production, or refining of a qualified product that results in a substantial transformation of the property. Production is limited to agricultural and chemical production. Qualified products include tangible personal property, excluding food or beverages prepared in the same building as a retail establishment where they are sold [2].

Exclusions:

QPP does not include portions of nonresidential real property used for offices, administrative services, lodging, parking, sales activities, research activities, software development, engineering activities, or other functions unrelated to manufacturing, production, or refining of tangible personal property [2].

Important Considerations:

Unlike bonus depreciation where expensing is automatic unless you elect out, you must affirmatively elect to expense QPP. If no election is made, the default is 39-year depreciation. Additionally, recapture rules apply if the property ceases to be used in a qualified production activity within 10 years of being placed in service [1].