Manufacturing Gets a Boost: How Bonus Depreciation Could Reshape Facility Ownership

ARTICLE | October 27, 2025

What if the path to significant tax savings for your manufacturing operation was hidden in the fine print of depreciation rules? For manufacturing companies considering facility improvements, expansions, or ownership changes, the evolving landscape of Qualified Production Property (QPP) and bonus depreciation presents unprecedented opportunities that could fundamentally alter your facility ownership strategy.

As manufacturing companies navigate an increasingly competitive landscape, every advantage counts. The intersection of QPP rules and bonus depreciation isn’t just a tax consideration—it’s a strategic business decision that could influence everything from facility investments to ownership structures.

Understanding Qualified Production Property Eligibility

Qualified Production Property represents a specialized category within the tax code that offers manufacturers unique advantages through enhanced bonus depreciation benefits. To qualify, property must be tangible personal property used predominantly in a qualifying production activity within the United States. This includes manufacturing, processing, engineering, and architectural services, but the rules extend beyond simple equipment purchases.

The eligibility criteria require careful analysis of both the property type and its intended use. Manufacturing equipment, specialized production tools, and certain facility improvements can qualify, but determining eligibility requires understanding the nuanced definitions within the tax code. For instance, property used in multiple activities must meet specific thresholds for production use to qualify for the enhanced benefits.

What makes QPP particularly valuable is its interaction with bonus depreciation rules. While traditional bonus depreciation has been phasing down, QPP maintains more favorable treatment, creating opportunities for manufacturers to accelerate deductions and improve cash flow during critical investment periods.

Leasehold Improvements and Ownership Structure Considerations

The relationship between QPP and leasehold improvements presents both opportunities and complexities for manufacturing companies. When manufacturers lease facilities and make qualifying improvements, the depreciation benefits can vary significantly based on the ownership structure and lease terms.

For leasehold improvements to qualify for enhanced depreciation benefits, they must meet specific criteria related to the underlying lease agreement and the nature of the improvements. This creates strategic considerations around whether to lease or own facilities, particularly when significant production-related improvements are planned.

Companies are increasingly evaluating ownership structures not just from an operational standpoint, but through the lens of tax efficiency. The QPP rules can make facility ownership more attractive in certain scenarios, particularly when combined with other tax planning strategies. However, this requires careful coordination between real estate, tax, and operational teams to ensure optimal outcomes.

Converting Existing Property and Managing Activity Changes

One of the most significant opportunities lies in the conversion of existing property to qualifying uses. When manufacturers expand operations, modify production processes, or repurpose facilities, existing property may suddenly qualify for QPP treatment. This conversion can unlock substantial depreciation benefits that might otherwise be overlooked.

However, the rules around ceasing qualifying activity present important considerations for long-term planning. When property no longer meets QPP criteria—whether due to operational changes, facility repurposing, or business model shifts—there can be tax consequences that require careful management. Understanding these “recapture” rules is essential for manufacturers who may face changing business conditions.

The key is proactive planning that considers not just current operations, but potential future scenarios. Manufacturers should evaluate their property holdings regularly to identify conversion opportunities while also planning for potential changes that could affect QPP status.

Strategic Implementation and Planning Considerations

Successfully leveraging QPP requires more than understanding the technical rules—it demands strategic integration with broader business planning. Manufacturing companies should evaluate their entire facility portfolio, considering how QPP treatment affects investment decisions, timing of improvements, and even acquisition strategies.

The phased reduction of traditional bonus depreciation makes QPP even more valuable for qualifying manufacturers. While general bonus depreciation percentages decline over the coming years, QPP maintains more favorable treatment, creating a widening gap between qualifying and non-qualifying property.

This disparity should influence capital allocation decisions, potentially favoring qualifying investments over alternatives. However, tax benefits should never drive business decisions in isolation—the operational benefits must align with tax advantages to create sustainable value.

Your Next Strategic Move

The evolving landscape of QPP and bonus depreciation represents more than a tax planning opportunity—it’s a chance to align tax strategy with operational excellence. For manufacturing companies, the combination of facility ownership decisions, investment timing, and tax optimization requires expertise that spans multiple disciplines.

At Insero Advisors, we understand that manufacturing companies need more than technical tax compliance—they need strategic partners who can navigate the complexities of QPP while supporting broader business objectives. Our team brings deep technical expertise in manufacturing tax issues, combined with the practical business insight that comes from working with growth-focused companies for over 50 years.

Don’t let valuable tax benefits slip through the cracks of complex regulations. Contact our manufacturing tax specialists today to evaluate how QPP and bonus depreciation could reshape your facility ownership strategy and strengthen your competitive position. Our commitment to The Highest Standard means you’ll receive not just technical accuracy, but strategic insights tailored specifically to your manufacturing operation’s unique needs and goals.