Breaking Down IRS QPP Guidance: How Florida Manufacturers Can Access 100% First-Year Facility Expensing
The IRS has issued its first substantive guidance on Qualified Production Property — and the rules are more nuanced, more generous, and more time-sensitive than most Florida manufacturers realize. If your business builds, renovates, or operates a production facility, this guidance directly affects your tax position in 2026 and beyond.
IRS Notice 2026-16 provides the interim rules for IRC § 168(n), the provision introduced by the One Big Beautiful Bill (OBBB) that allows eligible manufacturers to deduct 100% of the cost of a qualifying production facility in the year it is placed in service — rather than over the standard 39-year depreciation schedule. At ↗ Kal Onomato, our taxation and accounting services team has been monitoring this guidance closely, and this guide breaks down everything Florida manufacturers need to know to capture the maximum available benefit before this window closes.
This blog is part of our specialty tax series. If you have not yet read our guide on cost segregation studies or the broader 100% bonus depreciation strategy, we recommend reviewing those alongside this post. Together they form a complete picture of the accelerated depreciation tools available to Florida businesses right now through our financial advisory services.
What Is Qualified Production Property (QPP) and Why Does It Matter?
Qualified Production Property is a new category of depreciable real property created by the OBBB through IRC § 168(n). It provides a temporary 100% special depreciation allowance for new factory buildings and qualifying production facilities placed in service within the defined window. Unlike bonus depreciation — which applies to personal property components reclassified through a cost segregation study — QPP applies to the building itself, including structural components and applicable building systems.
The significance for Florida manufacturers cannot be overstated. Under the standard depreciation rules, a $10 million production facility generates a year-one depreciation deduction of approximately $256,000 (2.6% of cost). Under QPP with 100% expensing, the same facility generates a $10 million year-one deduction. The difference in immediate cash flow impact is transformative — and it is the reason our CFO advisory team is actively helping Florida manufacturing clients evaluate this opportunity right now.
💰 The scale of the opportunity: For a Florida manufacturer investing $5 million in a new production facility, QPP expensing can generate a $5 million first-year deduction compared to approximately $128,000 under standard 39-year depreciation. Combined with cost segregation for personal property components, a properly structured study can approach total facility expensing in Year 1 — a cash flow acceleration measured in millions, not thousands.
Key Dates and Deadlines: What Florida Manufacturers Must Know Now
QPP is a temporary provision with strict construction and placed-in-service deadlines that cannot be missed. Our tax planning team advises all Florida manufacturing clients to treat these dates as hard deadlines that should drive capital planning decisions starting today.
| Requirement | Key Date | Status for 2026 Projects | Notes |
|---|---|---|---|
| Construction must BEGIN after | January 19, 2025 | Already open | Projects started in 2025 or 2026 qualify |
| Construction must BEGIN before | January 1, 2029 | 2+ years remaining | Planning now gives you full runway |
| Facility must be PLACED IN SERVICE after | July 4, 2025 | Already open | Recent completions may already qualify |
| Facility must be PLACED IN SERVICE before | January 1, 2031 | 4+ years — plan carefully | Complex projects need early engagement |
| Election filing deadline | Tax return due date (year placed in service) | Irrevocable once made | Must include detailed statement — no retroactive filing |
| Recapture period ends | 10 years from placed-in-service date | Long-term compliance required | Use change triggers ordinary income recapture |
What Qualifies as QPP: The Four Core Requirements
Not every production facility automatically qualifies for QPP. Under IRS Notice 2026-16, the property must satisfy four distinct requirements — and each one matters. Our taxation team evaluates every Florida manufacturing client’s facility against all four criteria before recommending the QPP election.
Nonresidential Real Property Located in the United States
The facility must be MACRS nonresidential real property located on U.S. soil. This requirement is straightforward for most Florida manufacturers, but multi-site operations with offshore components need careful basis allocation. Our AI financial modeling tools map your facility basis geographically to ensure only qualifying U.S.-sited costs are included in the QPP election.
Construction Timeline: Begun After January 19, 2025 and Before January 1, 2029
Construction must have begun after January 19, 2025. For Florida manufacturers who broke ground in 2025 or are planning new facilities now, this window is wide open. But it closes on January 1, 2029 for construction start — meaning projects planned for 2027 or 2028 must begin immediately after approval to qualify. Our CFO advisory team helps you structure capital investment timelines to ensure QPP eligibility is preserved from the first day of construction.
Placed-in-Service Date: After July 4, 2025 and Before January 1, 2031
The facility must be placed in service after July 4, 2025, and before January 1, 2031. Florida manufacturers who completed facilities in late 2025 or 2026 may already qualify and should immediately engage our tax advisory team to evaluate a QPP election. The placed-in-service deadline of January 1, 2031 gives most ongoing projects sufficient runway, but complex multi-phase builds need early planning to ensure all phases meet this requirement.
The “Integral Part” Test: Used in a Qualified Production Activity
This is the most technically demanding requirement. The property must be used as an integral part of a Qualified Production Activity (QPA) — such as manufacturing, processing, or refining — that results in a “substantial transformation” of raw materials into a distinct final product. Simply storing, distributing, or selling finished goods does not meet this standard. IRS Notice 2026-16 also explicitly states that employee headcount is not an acceptable allocation method — an engineering-based cost segregation study is required to substantiate the production-area allocation. Our taxation team coordinates these specialized QPP studies for every eligible Florida client.
Ineligible Spaces and the 95% De Minimis Rule
QPP does not apply to every square foot of your facility. The IRS specifically excludes space used for offices, research, parking, sales, or finished product storage. This is where the engineering-based allocation methodology becomes critical — and where many Florida manufacturers make costly mistakes by attempting to self-allocate without qualified professional support.
However, IRS Notice 2026-16 provides a significant taxpayer-favorable provision: the 95% de minimis rule. If 95% or more of the physical space of a building is used for qualifying production activity, the taxpayer may elect to treat the entire building — including the ineligible 5% or less — as QPP. This election dramatically simplifies the allocation process and eliminates the need to carve out small administrative areas. Our tax planning team performs a preliminary space analysis for every Florida manufacturing client to determine whether the 95% threshold is achievable.
⚠️ IRS allocation requirement: Notice 2026-16 explicitly states that employee headcount is not a reasonable allocation method for separating QPP-eligible production space from ineligible administrative space. Only engineering-based methods — specifically including cost segregation studies — are accepted by the IRS. Attempting QPP without a qualified study creates serious audit exposure. Our taxation team coordinates IRS-compliant, audit-ready studies for every QPP election we file.
Acquired Buildings, Improvements, and Additions — Opportunities Beyond New Construction
One of the most valuable — and underappreciated — aspects of the QPP rules is the treatment of existing buildings and subsequent improvements. Many Florida manufacturers assume QPP applies only to ground-up construction. IRS Notice 2026-16 makes clear this is not the case.
Newly Constructed Production Facilities
Buildings where construction began after January 19, 2025 and that are placed in service before January 1, 2031. The primary and most straightforward QPP scenario for Florida manufacturers breaking ground now or in the planning stage.
Acquired Existing Buildings
Existing buildings purchased from an unrelated party can qualify if the property was not used by the taxpayer prior to acquisition AND was not used in any qualified production activity between January 1, 2021 and May 12, 2025. A clean-use history analysis is required.
Qualifying Improvements and Additions
Under Notice 2026-16, improvements and additions are treated as separate units of property. Even if the underlying building does not qualify, a new factory expansion, structural upgrade for a new production line, or qualifying renovation begun after January 19, 2025 can independently qualify for 100% QPP expensing.
Buildings Leased to a Tenant for Production
Generally, a landlord cannot claim the QPP deduction if they lease a building to a tenant who performs the production. Exceptions exist for consolidated groups and commonly controlled pass-through entities under the integrated facilities rules in Notice 2026-16.
Warehouse Converted to Production Facility
If renovation costs are capitalized as improvements or additions that begin after January 19, 2025 and are placed in service by January 1, 2031, those specific improvement costs can qualify for 100% QPP expensing — even if the original warehouse structure does not qualify.
Multi-Use Facilities with Office & Production Space
If the non-production portion (offices, breakrooms, R&D, finished goods storage) exceeds 5% of the building, those areas must be excluded. A QPP cost segregation study is required to allocate the basis correctly and substantiate the production-area claim with the IRS.
The Integrated Facilities Rule — Treating Multiple Properties as One
For Florida manufacturers with complex operations spread across multiple buildings or parcels, IRS Notice 2026-16 provides an important additional benefit: the Integrated Facilities Rule. Under this provision, multiple properties located on the same or contiguous land may be treated as a single unit for the purpose of satisfying the production requirements.
This rule is particularly valuable for manufacturing campuses where the production process flows across multiple structures — for example, a facility where raw materials are processed in one building and assembled in another. Without the integrated facilities rule, each building would need to independently satisfy the “integral part” test. With it, the entire campus can be evaluated as a single production unit, significantly expanding the range of qualifying property. Our financial advisory team analyzes your full facility footprint when evaluating QPP eligibility to ensure every qualifying structure is included in the election.
Making the QPP Election: What Must Be Filed and When
Claiming the 100% QPP deduction is not automatic. It requires a formal, irrevocable election made by attaching a detailed statement to your timely filed federal tax return for the year the property is placed in service. Once made, this election cannot be undone without formal IRS consent — which makes getting it right the first time essential.
Qualified Engineering Study
Commission a specialized QPP cost segregation study to identify eligible production space, allocate basis between QPP-eligible and ineligible areas, and verify the 95% threshold if applicable. Only engineering-based methods are accepted by the IRS under Notice 2026-16.
Prepare the Election Statement
The formal election statement must include the property’s address, a description of the eligible production areas, the specific dollar amount of the basis designated as QPP, and documentation substantiating why each structural component qualifies as an integral part of the production process.
File With Your Tax Return
The election statement must be attached to your timely filed federal tax return — including extensions — for the year the facility is placed in service. Late or amended filings generally cannot claim the QPP election. Our taxation team manages the full filing process.
📋 Critical filing note: The QPP election is irrevocable without formal IRS consent. This means the engineering analysis, basis allocation, and election statement must be correct before the return is filed. There is no opportunity to amend a filed QPP election if errors are discovered later. Working with a qualified CPA and cost segregation specialist from the outset is not optional — it is essential.
The 10-Year Recapture Rule: Long-Term Compliance Obligations
The significant upfront benefit of QPP comes with a long-term compliance obligation that every Florida manufacturer must understand and plan for before making the election. A 10-year recapture period begins on the date the property is placed in service.
If the building ceases to be used for a qualified production activity within that decade — for example, if a manufacturing floor is converted to a distribution warehouse, general office space, or sold to a party who uses it for non-qualifying purposes — the taxpayer must recapture the excess depreciation as ordinary income in the year the use changes. The recapture amount is the difference between the 100% QPP deduction originally claimed and the depreciation that would have been allowed under standard 39-year straight-line rules. For a $10 million facility, this can be a very significant tax event.
Our CFO advisory services build long-term recapture monitoring into every QPP engagement, ensuring your business maintains appropriate documentation of qualifying production activity throughout the 10-year window and receives early warning if any operational changes could trigger a recapture event.
🚨 Recapture risk is real: Converting even a portion of a QPP-designated facility to office use, finished goods storage, or non-qualifying activities within the 10-year window can trigger immediate ordinary income recognition on the full excess depreciation claimed. Florida manufacturers planning facility expansions, operational pivots, or potential sales must account for this risk in their financial modeling. Our AI cash flow forecasting tools track and alert you to any operational changes that may affect your QPP compliance status.
How Kal Onomato Helps Florida Manufacturers Capture the Full QPP Benefit
Qualifying for and correctly claiming QPP requires specialized tax knowledge, engineering-based substantiation, and careful long-term compliance management. At Kal Onomato, our full-service team handles every element of the QPP process for Florida manufacturing clients. Here is exactly what we do:
- Preliminary QPP eligibility analysis — we evaluate your facility’s production activity, space allocation, and construction timeline against the Notice 2026-16 requirements before you commit to a full study, so you know the opportunity size upfront.
- Specialized QPP cost segregation studies — coordinated with qualified engineers using IRS-accepted methods to allocate building basis between eligible production areas and ineligible spaces, with full audit-ready documentation as required by IRS guidelines for Florida businesses.
- 95% de minimis rule verification — we perform detailed space measurement and use analysis to determine whether your facility qualifies for the full-building election, potentially eliminating the need for complex area-by-area allocations.
- Improvement and addition analysis — we evaluate every capital project at your facility to identify QPP-eligible improvements that qualify independently, even when the underlying building structure does not.
- Election statement preparation and filing — our taxation team prepares the complete, IRS-compliant QPP election statement and coordinates with your federal tax return filing to ensure the election is made correctly, on time, and irrevocably defensible.
- 10-year recapture monitoring — our AI-powered financial platform tracks your facility’s qualifying production use throughout the recapture window and alerts your team if any operational or ownership changes could trigger a recapture event — protecting the tax benefit you worked to secure.
- Integration with Florida state tax compliance — QPP federal deductions must be coordinated with Florida state tax filings. Our team ensures full compliance with Florida state accounting and tax preparation requirements so your QPP benefit flows correctly at both the federal and state level.
🤖 AI-Powered QPP Monitoring — A First for Florida Manufacturers
While most accounting firms file your QPP election and consider their job done, our AI financial platform continues working for you throughout the full 10-year recapture window. Our real-time financial dashboard integrates with your operations data to continuously verify qualifying production activity, flag any space-use changes that could affect your QPP status, model the cash flow impact of potential facility changes before you make them, and generate annual compliance reports that document your ongoing QPP qualification. This is the level of long-term protection that transforms a one-time tax election into a permanent competitive advantage. Schedule your free consultation today →
Frequently Asked Questions About IRS QPP Guidance and IRC § 168(n)
Ready to Claim 100% First-Year Expensing on Your Florida Production Facility?
Book a free 30-minute consultation with Kal. We will evaluate your facility’s QPP eligibility, estimate your potential first-year deduction, and outline exactly what a qualified engineering study needs to document to make your election IRS-defensible. No pressure — just expert, licensed CPA guidance.
