New Manufacturing Tax Deduction Could Be a Game-Changer — If You Structure It Right
Find the long version of this summary here: Executive Summary: 100% Deduction for New Manufacturing Facilities (Qualified Production Property)
From January 1, 2025 through December 31, 2028, there’s a powerful federal tax deduction on the table for businesses that build or buy manufacturing property — but you have to structure it right to qualify.
The headline: If you construct or purchase a building and use it for actual manufacturing, production, or refining, you may be able to deduct 100% of the building cost in the year it’s placed in service. This goes far beyond machines and equipment — this is about the building itself.
Under the new IRC §168(n) provision — often referred to as the Main Street Manufacturing deduction or Qualified Production Property (QPP) expensing — businesses can fully expense the cost of eligible real property placed in service during that four-year window. But the rules are tight, and the IRS will be watching.
No More “HoldCo leases to OpCo”
That common setup where your holding company owns the building and leases it to your operating business? That structure kills the deduction. The law is clear: landlords don’t qualify, even if the tenant is your own company. To get this right, the same taxpayer needs to be on both sides of the activity.
Even if you’re using a disregarded LLC, having a formal lease in place could still trigger the lessor disqualification. If there’s rent on paper, the IRS could treat it as a landlord arrangement regardless of how it’s taxed. That means your real estate holding company likely won’t qualify unless it’s completely ignored for tax purposes and there’s no lease in place.
Use It Right — Or Give It Back
There’s a 10-year recapture rule. If you stop manufacturing in that space, convert it to storage, lease it out, or sell it within 10 years, you could be required to pay back some or all of the tax savings. This isn’t a quick-flip benefit — it’s meant for long-term operators with real production activity.
Watch the Anti-Abuse Period
You also can’t just buy an old factory and write it off. If the building was used by anyone for manufacturing between January 1, 2021 and May 12, 2025, it doesn’t qualify. That anti-abuse lookback period trips up more deals than you’d think. You’ll need documentation showing what the space was used for — and brokers aren’t always equipped to give you the right answer.
Mixed-Use? Only Deduct the Manufacturing Footprint
If your business occupies part of a property and leases out the rest, only your manufacturing portion counts. You’ll need to carve out the costs based on actual use — square footage, building systems, etc. This isn’t a generic cost seg play. It’s a functional-use allocation tied to how much of the building supports actual manufacturing activity.
Didn’t Qualify? There May Still Be Options
If the building flunks the QPP test, you might still be able to expense certain components — like HVAC, roofs, security systems, or tenant improvements — under Section 179. It’s not a full write-off of the building, but it might still give you meaningful deductions in the first year. That’s especially important if you’re investing in a facility that’s used for warehousing, offices, or other non-manufacturing functions.
The §168(n) window only runs from 2025 to 2028. Miss the timing, and you miss the deduction.
Thinking about buying or building a facility for your business? Let’s make sure your structure doesn’t blow up your deduction.
I work with operators, owners, and investors who want to take full advantage of the new §168(n) manufacturing deduction. If you’ve got a project on deck and want to make sure it’s eligible before it’s too late to fix the setup — let’s talk.
This is not tax advice. But if you’re looking for real-world answers and practical modeling, I can help.
You can reach me directly at info@neil.tax or (541) 240-2933.
