Qualified Production Property (QPP) – Benefits for Developers & Owners

1. Definition & Eligibility

• QPP refers to tangible personal property used in manufacturing, production, extraction, or certain construction/renovation activities in the U.S.

• Includes specialty building components in many projects:

  • Electrical, plumbing, and HVAC dedicated to specific processes

  • Specialty lighting

  • Flooring, millwork, fixtures

  • Certain land improvements (parking lots, landscaping, fencing)

2. Key Tax Benefits

a. Accelerated Depreciation

• QPP often qualifies for bonus depreciation (100% through 2022, now phasing down, but still powerful).

• Instead of depreciating over 27.5 or 39 years, QPP can be written off in 5, 7, or 15 years — or in the year placed in service if bonus applies.

b. Immediate Cash Flow Boost

• A cost segregation study can identify QPP and shift it into shorter asset lives, creating large upfront deductions.

• This reduces taxable income immediately, freeing up capital for reinvestment.

c. Net Operating Loss (NOL) Creation

• Large deductions from QPP may generate an NOL, which can be carried forward to offset future income.

• In prior years, these could sometimes be carried back (depending on law changes) — still valuable for long-term tax strategy.

3. Strategic Benefits for Developers

• Improved project ROI — faster recovery of construction or renovation costs.

• Competitive advantage — lower after-tax cost means more competitive lease or sale pricing.

• Better investor returns — accelerated deductions improve Internal Rate of Return (IRR) in financial models.

4. Strategic Benefits for Owners

• Stronger cash position — keep more money in the business instead of paying taxes upfront.

• Funding for growth — tax savings can be redirected into acquisitions, upgrades, or debt reduction.

• Flexibility — owners can time projects and place QPP in service strategically for maximum tax impact.

5. Example Impact

• A $5M building:

  • Without QPP identification → depreciation ~ $128k/year over 39 years.

  • With cost segregation identifying QPP → potential $1M+ deduction in Year 1, drastically reducing taxes.