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Manufacturing Facility Unlocks 100% Bonus Depreciation Through Qualified Production Property

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How EisnerAmper Guided an Industrial Real Estate Developer Through a Third-Party Leasehold Structure with a QPP-Focused Cost Segregation Study 

Client

Our client is a real estate firm focused on industrial property development in urban centers.

The One Big Beautiful Bill Act (OBBBA) created a new property classification: Qualified Production Property (QPP). QPP is defined as the portion of U.S. non-residential real property used in a qualified production activity (manufacturing, producing, or refining of tangible personal property that is substantially transformed). Only the manufacturing-use portion of the facility qualifies, as areas like office space, parking, and retail/sales are excluded by definition.

When project timing is correct, QPP is temporarily eligible for 100% bonus depreciation, boosting the impact of a facility Cost Segregation Study. This has created a great deal of interest among domestic manufacturers.

a group of skyscrapers

Challenge:

The client constructed a 744,000 SF facility in the downtown district of a West Coast hub city. Construction began in August of 2025 and the property was placed in service in November of 2026, with a final depreciable basis of $50M.

The client’s particular concern was their third-party lease. They were eager to benefit from QPP, but unsure if they would qualify as their property was not owner-occupied.

Approach

While it’s true that originally QPP was restricted to owner-occupied facilities, recent guidance allows owners to benefit from QPP in certain lease situations:

  • Real estate holding companies/leasing operating companies
  • Related-party leases
  • Tiered ownership groups

This is a significant development, permitting developers in common ownership structures to benefit from QPP.

Our team explained that although the third-party lease will not impact QPP eligibility, there are other factors that must be considered as well, including:

  • Activity and Substantial Transformation Verification
    • Taxpayer must be engaged in manufacturing, refining, or agricultural or chemical production, the result of which is a substantial transformation of inputs into a completely different end product
  • Construction timing for 100% bonus depreciation
    • Construction must commence between 1/20/2025 – 12/31/2028
  • Placed-in-service timing for 100% bonus depreciation
    • Property must be placed-in-service between 7/4/2025 - 1/1/2031

To ensure that the property is eligible for QPP and 100% bonus depreciation, our team requested and reviewed several property-specific documents:

  • A production process narrative and process flow diagrams
  • A product list
  • The beginning of construction documentation
  • Placed-in-Service documentation
  • Floor plans showing functional use by area, including square footage
  • Descriptions of excluded areas: office, sales, R&D, parking, etc.
  • Utility systems serving production vs. non-production areas

The Results

The document review indicated that portions of the property would be QPP-eligible, which informed the EisnerAmper engineer’s approach. In addition to typical site visit activity (identifying and quantifying assets, taking photos and measurements, etc.) the engineer focused on functional area mapping.

Only parts of the property directly involved in production activity are eligible for QPP. A key portion of the engineering analysis involves assessing property areas by function and carefully carving out eligible assets.

functional area qpp status
Production Floor Eligible
Production Utility Rooms Often eligible if integral
Storage of Component Parts Generally eligible
Storage of Finished Goods Generally ineligible
Offices & Admin Areas Excluded
Sales & Retail Areas Excluded
Software & R&D Areas Excluded
Parking Excluded

When the analysis was complete, the property assets broke down as follows:

5-Year Personal Property: 12% (non-production areas)

15-Year Land Improvements: 8%

QPP: 65% (building core and shell assets for production areas)

39-Year: 15% (building core and shell assets for non-production areas)

The QPP was eligible for 100% bonus depreciation based on project timing. 

First-Year Tax Savings: $14.6M

The study produced a strong result for the developer, driven by the significant fraction of the property that qualified as QPP. On a facility they had assumed would not qualify because it was leased to a third party, the owner walked away with a fully documented QPP position and a substantial first-year tax benefit.

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How EisnerAmper Can Help

Learn how an industrial real estate developer used QPP guidance and a cost segregation study to unlock 100% bonus depreciation and $14.6M in first-year tax savings.