ARTICLE | March 03, 2026
If you own or are planning to build a manufacturing or production facility, Congress just handed you one of the most significant tax incentives in decades. Under the newly enacted One Big Beautiful Bill Act, signed into law on July 4, 2025, qualifying manufacturers can now deduct 100% of the cost of a new production building in the very first year it is placed in service -- instead of spreading that deduction over 39 years. For a business investing $5 million, $10 million, or more in a new or expanded facility, that difference is not just meaningful -- it could be transformational.
What Is QPP and Who Qualifies?
The new deduction applies to what the IRS calls Qualified Production Property (QPP) -- nonresidential real estate used as an integral part of a qualified production activity. That includes manufacturing, food and agricultural processing, chemical production, refining, and similar industrial operations that result in the substantial transformation of tangible goods. In plain terms, if your facility turns raw materials into a fundamentally different product, you are likely in the right ballpark.
To qualify, construction must have begun after January 19, 2025, and before January 1, 2029, and the property must be placed in service before January 1, 2031. A NAICS-based safe harbor is available for businesses with principal activity codes in Manufacturing (Sectors 31-33) or Agriculture (Subsectors 111-112). But not every square foot counts -- office space, administrative areas, R&D labs, sales areas, parking, and finished goods storage are all excluded. If 95% or more of your building is dedicated to production, however, the entire building may qualify under a helpful de minimis rule.
This is a rare, time-limited opportunity for manufacturers to dramatically accelerate their tax deductions on capital investment. The key is making sure you have the right documentation, construction timelines, and allocation methodology in place before you file -- because the election is irrevocable once made.
The Related-Entity Structure Issue: What You Need to Know
Many manufacturing businesses operate with a common structure: a separate real estate holding entity owns the building, while the operating company -- the actual manufacturer -- leases and uses it. This is where things get complicated under the new rules. In general, leased property does not qualify for the QPP deduction. The entity that owns the building claims depreciation, but if it is not the entity conducting the production activity, the deduction may be lost.
There are limited exceptions, particularly for consolidated groups and certain commonly controlled entities, but these rules are nuanced and the wrong structure could mean forfeiting a significant deduction. Given that formal regulations have not yet been issued -- and the IRS is currently accepting public comments on open issues through April 20, 2026 -- there is still meaningful uncertainty in this area that requires careful navigation.
Act Now Before the Window Closes
This incentive is powerful, but it comes with strict rules: an irrevocable election, a 10-year recapture risk if the property stops being used in a qualifying production activity, and construction start deadlines that are already running. The time to plan is before concrete is poured, not after.
KHA Accountants has expertise in manufacturing and production industries, and our team is actively helping clients evaluate whether their current or planned facilities qualify, how to properly allocate basis between eligible and ineligible space, and how to structure entities to maximize this deduction. If you are a manufacturer with a facility project on the horizon -- or already underway -- contact our office today to speak with one of our advisors. The opportunity is real, but so is the deadline.
Contact KHA Accountants at www.kha.cpa to schedule a consultation with our manufacturing and tax advisory team.