Qualified Production Property: A 2026 Planning Opportunity for Contractors and Facility Owners
Recent IRS guidance has brought new attention to Qualified Production Property, or QPP, and its role in facility planning for businesses involved in manufacturing, production, refining, and certain agricultural production activities. For owners considering new facilities, expansions, or major improvements, the QPP rules may create a meaningful timing and cash-flow conversation. For contractors, the guidance may also shape how clients approach project scope, documentation, and construction schedules.
The IRS issued Notice 2026-16 on February 20, 2026, providing interim guidance and announcing forthcoming proposed regulations for the special depreciation allowance tied to QPP. In general, the provision allows taxpayers to elect a depreciation deduction of up to 100% of the unadjusted depreciable basis of qualified production property placed in service during a taxable year. QPP is generally nonresidential real property used by a taxpayer as an integral part of a qualified production activity.
Why Owners Should Pay Attention
For facility owners, the opportunity starts with eligibility. IRS Publication 946 explains that eligible QPP must be nonresidential real property, used as an integral part of a qualified production activity, constructed beginning after January 19, 2025, and before January 1, 2029, and placed in service in the United States or a U.S. territory after July 4, 2025, and before January 1, 2031.
That timing matters. Owners planning production space in 2026 should be thinking early about how the facility will be used, which portions of the building support qualifying activity, and how project costs will be tracked. The rules also distinguish between qualifying production areas and spaces such as offices, research areas, or finished goods storage, which may not qualify.
Ownership and use are also important. Prior analysis of the QPP rules has noted that the “used by the taxpayer” standard may raise questions when a facility is owned by one entity and operated by another, including related-party or lease arrangements. The IRS guidance also notes that if a taxpayer leases property to someone else who conducts the qualified production activity, the lessor generally does not qualify for the special depreciation allowance.
Why Contractors Should Be Part of the Conversation
Contractors may not always be the taxpayer claiming the deduction, but they can play an important role in helping owners plan ahead. Project timelines, construction start dates, placed-in-service dates, cost detail, and documentation may all become more important as owners evaluate QPP eligibility.
This creates an opportunity for contractors to strengthen client conversations early in the planning process. Owners may ask more questions about phased construction, production-area buildouts, cost breakdowns, and how improvements are documented. Contractors who understand the basics of QPP can help coordinate with tax advisors, architects, and project teams before key decisions are made.
Planning Ahead in 2026
QPP is not a one-size-fits-all benefit. The IRS guidance includes election procedures and recapture rules, including a general 10-year recapture concern if QPP stops being used as an integral part of a qualified production activity.
For owners and contractors, 2026 is a good time to bring tax, accounting, and construction planning together. Before breaking ground or finalizing an expansion plan, businesses should understand how the QPP rules may apply and what documentation may be needed. Brady Martz professionals can help clients evaluate the issue, coordinate with project stakeholders, and determine whether a deeper QPP discussion should be part of their planning process.
Sources:
Internal Revenue Service. (2025). Publication 946 (2025), how to depreciate property.
https://www.irs.gov/publications/p946
Internal Revenue Service. (2026, February 20). Treasury, IRS issue guidance on special depreciation allowance for qualified production property, announce upcoming proposed regulations under the One, Big, Beautiful Bill.
Related Posts
Surviving the Labor Shortage: Strategies for Attracting and Retaining Skilled Workers
The construction industry has long battled workforce challenges, but today’s labor shortage is hitting harder than ever. Skilled tradespeople are retiring faster than new workers enter the field, project demand continues to grow, and competition for talent spans far beyond construction alone. For contractors, developers, and specialty firms, staffing constrai
Commercial Real Estate Market Forecast: Key Trends for Q4 2025
As 2025 enters its final quarter, the commercial real estate (CRE) market continues to balance opportunity and uncertainty. High interest rates, evolving tenant demands, and shifting capital markets have created a landscape where agility and foresight matter more than ever. For developers, investors, and construction firms, understanding where the market is hea
Construction Claims & Disputes: How to Avoid Costly Setbacks
Claims and disputes are an unfortunate reality in the construction industry. Tight deadlines, complex contracts, fluctuating material costs, and multiple stakeholders often create the perfect environment for misunderstandings or disagreements. And when even minor issues escalate, the financial consequences can be significant, from project delays and legal fees
Cost Segregation in 2026: What Real Estate Owners Should Review Before Their Next Project
Cost segregation continues to be a valuable planning tool for real estate investors, and 2026 brings a mix of opportunity and caution. As projects grow more complex and interest rates remain unpredictable, many owners are paying closer attention to how depreciation timing affects cash flow. A well-executed cost segregation study can identify shorter lived asset