How Manufacturers Can Benefit from the New Tax Law

By John Allen, CPA and Matt Wildasin, CPA

Part II: Cost Segregation and Qualified Production Property in Action

In Part I of this series, we introduced the major incentives available to manufacturers under the One Big Beautiful Bill Act (OBBBA). Now let’s get into the mechanics of how to actually use them.

If you own, build, expand, or renovate manufacturing facilities, Cost Segregation and Qualified Production Property (QPP) could significantly improve cash flow and reduce tax liability. 

Let’s break it down in practical terms.

What Is Cost Segregation and What Does it Mean for Manufacturers?

When you build or purchase a manufacturing facility, the entire building is depreciated over 39 years.

That means if you invest $10 million in a facility, you typically deduct just a small fraction of that each year for nearly four decades.

But the reality is that not everything inside your facility should be treated the same.

Manufacturing facilities are packed with specialized systems:

• Reinforced flooring
• Dedicated electrical for machinery
• Process-specific plumbing
• Compressed air systems
• Specialty HVAC
• Built-in cranes and conveyor systems

Per IRS-guidance, these assets can be depreciated more quickly.  This “accelerated depreciation” allows owners to benefit from deductions sooner, taking advantage of the time value of money. A cost segregation study is the vehicle by which depreciation is accelerated, identifying assets that can be reclassified into shorter 5-, 7-, or 15-year lives. 

For manufacturers, shorter-lived assets make up a large fraction of property components:

• Light manufacturing facilities often reclassify 10–30% of assets
• Heavy manufacturing facilities may reclassify 40–50% or more

This translates into larger deductions, sooner, with a commensurate increase in cash flow. 

The Power Multiplier: 100% Bonus Depreciation Is Back

Accelerated depreciation is powerful on its own.

But the OBBBA brings an added benefit: the restoration of100% bonus depreciation for qualifying property placed-in-service on/after 1/20/2025.

Qualifying assets are those with a class life of 20-years or less.  These assets – when identified in a cost segregation study -- can be written off entirely in year one.

100% bonus depreciation is incredibly impactful, especially if you are:

• Expanding your plant
• Adding automation
• Investing in new production lines

Qualified Production Property (QPP): A New Opportunity for Manufacturers

This is where things get especially interesting.

The new law introduced a property category called Qualified Production Property (QPP). Recent IRS guidance clarified how it works and significantly expands what manufacturers can deduct.

Historically, core building and shell components like foundations, load-bearing walls, and structural steel frameworks were locked into 39-year depreciation.  They could not be moved into any shorter-lived asset class and were never eligible for bonus. 

Enter the OBBBA. 

For the first time, base-building assets like these may be eligible for 100% bonus if:

• The space is integral to a “qualified production activity”
• Property is constructed/acquired before 1/1/2029
• Property placed-in-service before 1/1/2031

This is a major shift – and a very taxpayer-friendly development. 

However, note the clearly defined window for planning expansions, new builds, or acquisitions.  This is a time-sensitive opportunity.

So What Counts as “Production”?  What Assets are Eligible for QIP?

To qualify, your facility must be engaged in activities such as:

• Manufacturing tangible goods
• Agricultural production
• Chemical production
• Refining raw materials into higher-value products

The key requirement is that your process results in a substantial transformation. In other words, you are converting raw materials or components into a new product.

Sometimes an entire facility will be used for production activity, in which case the entire property may be classified as QPP.   

However, many facilities have space designated for non-production activities.  In these mixed-use facilities, only the portions directly tied to production are eligible for QPP.

Eligible for QPP	Ineligible for QPP
Factory floor	Sales areas
HVAC	Office space
Built-in conveyor systems	Parking
Built-in cranes/hoists	Areas for labeling
Component parts storage	Warehouse areas for finished goods

Lease Structures: Good News for Many Manufacturers

Many manufacturers operate using some type of lease, often through separate real estate and operating entities.

Recent IRS guidance clarified that in commonly controlled ownership structures, the real estate holding company may claim the QPP even if the operating company is the tenant.

If your real estate is held in a related entity, this is worth reviewing carefully.  QPP is a viable incentive for most of today’s typical ownership structures. 

What This Means for Your Business

When Cost Segregation, bonus depreciation, and QPP are combined, the effect can be dramatic.

Instead of recovering building costs over 39-years, you may be able to:

• Accelerate depreciation on a large portion of the facility
• Apply 100% bonus depreciation to short-lived 5- and 15-year assets
• Apply 100% bonus depreciation to building and shell assets in production areas using QPP

This facilitates:

• Faster capital recovery
• Improved project-level ROI
• Strengthened near-term cash flow
• Reduced after-tax cost of expansion, automation, and innovation

For capital-intensive manufacturers, this can reshape how projects are evaluated.

The Right Next Step

These incentives are powerful, but they are highly technical and fact-specific. Eligibility depends on how your facility is built, how it operates, and how ownership is structured.

A properly executed cost segregation study is essential. So is careful analysis of QPP qualification and timing requirements.

The Boyer & Ritter team works closely with manufacturers to:

• Evaluate existing facilities
• Model tax outcomes for planned projects
• Analyze ownership structures for QPP eligibility
• Coordinate engineering-based cost segregation studies

If you are investing in facilities, automation, or expansion, this is not something to evaluate casually. The numbers can be significant, and the timing is limited.

This kind of alignment between tax policy and manufacturing investment is rare.  Let’s make the most of it. 

Ready to See What Your Facility Could Unlock?

If you’re planning a build, expansion, renovation, or acquisition, let’s talk through the numbers and the timing. A focused cost segregation and QPP review can help you capture deductions sooner and improve near-term cash flow.

John Allen, CPA and Matt Wildasin, CPA are key team leaders in our Manufacturing Practice Group—contact them at jallen@cpabr.com or mwildasin@cpabr.com to discuss how these incentives could apply to your facility.