January 22, 2026 100% Bonus Is Back: QPP Turns Buildings Into Deductions

OBBBA’s new Section 168(n) lets manufacturers expense qualifying facility costs – if timing, use, and documentation line up. Cost seg helps.

By Michael Webb and Ed Meyette

Manufacturers – including life sciences and pharmaceutical manufacturers – know that capital projects live or die on cash flow . The One Big Beautiful Bill Act (OBBBA) reshaped that math by restoring 100% bonus depreciation for most qualifying tangible property and creating qualified production property (QPP) under IRC Section 168(n) – a new way to immediately expense certain portions of nonresidential buildings tied directly to U.S. production.

The opportunity is significant, but QPP is not “my building is a factory, therefore 100%  depreciation.” It is an election layered on top of definitional tests (“integral to production,” “substantial transformation,” “begin construction”) and cost-allocation work. The manufacturers that treat this as a coordinated engineering plus tax plus fixed-asset process are the ones most likely to capture the full benefit and defend it.

Two different 100% deductions (don’t blend them)

The OBBBA effectively gives manufacturers two separate acceleration tools:

• Section 168(k) bonus depreciation: Generally applies to tangible property with a recovery period of 20 years or less (machinery, equipment, many land improvements, and certain components reclassified via cost segregation).
• Section 168(n) QPP expensing: Applies to the qualifying portion of domestic nonresidential real property integral to a qualified production activity – property that historically would have been depreciated over 39 years.

Both tools might deliver a 100% first-year deduction, but the timing rules, elections, and recapture risks are different – so modeling and documentation matter.

What qualifies as QPP (and what’s carved out)

At a high level, QPP is the portion of a nonresidential building that is:

• Used by the taxpayer as an integral part of a qualified production activity (manufacturing, certain production, or refining) that results in a substantial transformation of a qualified product
• Placed in service in the United States (or a U.S. possession)
• New-to-use in qualified production for that taxpayer (with an exception for certain acquired facilities that were not used in qualified production during a lookback period)
• Not required to be depreciated under the alternative depreciation system (ADS) 
• Constructed within the statutory window (construction begins  after Jan. 19, 2025, and before Jan. 1, 2029) and placed in service within the statutory window (generally after July 4, 2025, and before Jan. 1, 2031)
• Designated through an election with the tax return for the placed-in-service year

What’s excluded is just as important: QPP does not include building areas used for offices, administrative services, lodging, parking, sales, research, software engineering or engineering activities, or other functions not integral to production. There also is a lessor exclusion – leased property is not treated as used by the lessor for QPP purposes.

For modern manufacturing campuses with production, research and development (R&D), engineering, and offices under one roof, QPP turns into a portion problem: Taxpayers must isolate what is integral to production and support the allocation.

Timing is everything: Placed in service versus acquired versus begin construction

Bonus depreciation is claimed in the year property is placed in service – when it is ready and available for its intended use – often later than when it is purchased or delivered.

The OBBBA adds an additional timing layer. For Section 168(k), the bonus percentage can depend on when property is treated as acquired (often tied to a written binding contract). For self-constructed property, “acquired” might effectively tie back to when construction is treated as having begun – concepts that manufacturers might recognize from earlier bonus depreciation transition rules. Note that taxpayers currently are awaiting guidance clarifying the ” beginning of construction” issue.

For QPP, the “begin construction” date is a gatekeeper. If a project’s construction is deemed to have begun before the statutory start date, the facility might be outside the QPP window – even if it is placed in service later. That makes contemporaneous documentation nonnegotiable: notices to proceed, binding contract terms (including cancellation rights), invoices for all costs incurred prior to Jan. 20, 2025, job logs, inspection records, and site photos.

Why cost segregation still matters under QPP

A common misconception is that cost segregation doesn’t matter if a building can be expensed under QPP.

In practice, QPP often increases the value of cost segregation because there are two different allocation tasks:

• QPP use segregation: Determines what portion of the building is eligible (production) versus excluded (such as offices, R&D, and parking)
• Traditional cost segregation: Identifies shorter-lived assets embedded in the project (five-, seven-, and 15-year property) that might qualify under Section 168(k) and faster recovery of costs, regardless of QPP

When coordinated, the following can help:

• Maximize the eligible deduction by assigning costs to the correct uses and asset classes based on actual function and engineering support.
• Manage QPP recapture risk, as QPP comes with a special 10-year recapture rule if the property is disposed of or otherwise ceases to be used in qualified production. Reducing the amount treated as QPP by properly carving out non-QPP assets can reduce exposure under that QPP-specific regime.
• Improve state outcomes, though state conformity to federal expensing rules varies. Even where immediate expensing isn’t available at the state level, cost segregation still can accelerate state depreciation by shifting costs out of 39-year property.

Three  issues to address early

1. Mixed-use realities. If a facility includes offices, labs, employee amenities, parking, or customer-facing areas, the portion concept requires a consistent allocation method and credible support.
2. Entity and lease structures. Many manufacturers hold real estate in a separate entity and lease it to an operating company. The lessor exclusion creates uncertainty and can change the outcome if the taxpayer using the property is not the entity that owns it.
3. Acquired facilities and expansions. The acquired-property exception can be valuable, but it requires diligence around lookback use and related-party rules, and expansions to existing sites can raise questions about the qualifying portion.

Life sciences and pharma: Where QPP shows up

Life sciences capital projects often are among the most capital intensive and schedule sensitive i n manufacturing: clean rooms, sterile fill-finish suites, bioprocessing areas, active pharmaceutical ingredient (API) plants, and packaging expansions. QPP can materially change the after-tax cost of these projects in the United States when qualifying areas are integral to producing a product through substantial transformation.

This becomes a practical consideration in the way regulated facilities are designed: production suites and process support spaces sit next to quality labs, engineering offices, and R&D. Section 168(n) is a portion rule, so eligibility is won or lost based on how well an organization separates qualifying production areas from excluded uses and supports the allocation with drawings and cost details.

Examples to consider early (facts and future guidance will matter):

• Good manufacturing practice ( production suites and clean rooms used for compounding, formulation, fermentation and cell culture, purification, tableting and capsule filling, sterile fill-finish, lyophilization, and packaging lines
• Process-support rooms integral to production (such as weigh and dispense, buffer and media prep, and gowning and airlocks that control the production environment)
• Dedicated mechanical and utility spaces that primarily serve production environments (clean room HVAC, clean steam, water for injection, and process piping chases) and for which allocation support is essential

Areas that frequently require careful carve-outs:

• R&D and process development labs (explicitly excluded as “research activities”)
• Engineering, design, and software development areas (explicitly excluded)
• Administrative offices, conference rooms, training centers, and other nonintegral areas
• Parking structures and general parking areas
• Quality control, analytical labs, and warehousing, which often are operationally tied to manufacturing, but classify based on actual use and document the rationale

Also keep “placed in service” in mind . In pharma and biotech, readiness can be tied to commissioning, qualification, and validation (CQV) milestones. Align the tax placed-in-service analysis with the project’s CQV documentation so the deduction year is defensible.

A practical documentation checklist

• A facility use map (floorplans and narrative) labeling production, storage, offices, labs, parking, and other excluded areas
• A construction timeline binder (contracts, change orders, notices to proceed, invoices, milestone logs, and photos)
• A cost model tying the general ledger and pay apps to the use map and cost segregation classifications
• An election sign-off process before filing (because QPP expensing is elective and could be irrevocable without consent)

Bottom line

The OBBBA created a powerful pairing for manufacturers: restored 100% bonus depreciation under Section 168(k) and a new, targeted 100% expensing tool for qualifying facility real property under Section 168(n). The value is real, but it is unlocked through disciplined timing analysis, credible use allocations, and documentation that can survive scrutiny.

For many manufacturers, the most effective approach is coordinated among business areas: engineering and operations define use, tax defines eligibility and elections, and cost segregation specialists translate that reality into defensible asset classifications and allocations.

About the Authors:

Michael Webb is a senior manager in the Crowe LLP national federal tax consulting services (FTCS) group and supports clients to provide fixed asset, accounting method, and clean energy solutions in a variety of industries.

Ed Meyette is a partner in the Crowe LLP national tax services group and leads the firm’s fixed asset solutions group.

Read more:

Power Lunch: The Tax Side of Capital Spending | Crowe Insights, 2/12/2025

Year-End Hot Topics in Tax | Crowe Insights, 12/16/2025

Subscribe to Industry Today