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The qualified production property deduction lets you expense a factory’s basis in year one — but the exclusion list, the 95% cliff, and ten years of recapture mean the floor plan and the documentation are now the deal.
The square footage that earns you an R&D credit is the same square footage that disqualifies your building from 100% expensing.
Section 168(n) — the qualified production property deduction — lets you write off a manufacturing facility’s basis in year one. Construction has to begin before January 1, 2029. The building has to be placed in service before January 1, 2031.
Verbatim: offices, administrative services, lodging, parking, sales activities, research activities, software development or engineering activities. So the lab bay generating your §41 qualified research expenses is carved out of the deduction on the shell around it. Notice 2026-16 adds that storage of finished product is out too.
And it is a cliff, not a slope. The Notice lets you elect the entire building if 95% or more of the physical space clears the integral-part test. At 94%, you get the qualifying portion only. Three points of floor plan can swing the whole election.
QPP does not stack with bonus depreciation. It is a separate class that automatically elects out of §168(k). The cost segregation study stopped being a nice-to-have — it is what tells you which dollars go where.
And QPP drags ten years of §1245 recapture behind it. A change in use inside that window turns real property gain that would have been capped at 25% into ordinary income.
Meanwhile, Form 6765 Section G goes mandatory for tax years beginning after 2025 — the year you are sitting in right now. That is 80% of QREs reported by business component, up to 50 components.
In George v. Commissioner (T.C. Memo 2026-10) this year, the taxpayer’s base-period substantiation failed and the ASC rate fell from 14% to 6%. Same current-year spend. Less than half the credit. The deduction and the credit are both engineering exercises now. The floor plan and the documentation are the deal.
If you are building or buying production real estate, map the two together before the election locks.