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Unlocking Hidden Cash Flow: A Strategist’s Guide to QIP, QPP, and the 2025 Depreciation Reset




In real estate and operating businesses, tax is never just a compliance exercise—it’s a cash-flow strategy. The timing of deductions can materially change how fast you scale, how you finance growth, and how much capital you keep working inside the business.


With the passage of H.R. 1 (commonly referred to as the OBBB), the depreciation landscape shifted again—this time in a way that creates new planning opportunities starting in the 2025 tax year. Two concepts are especially important to understand: Qualified Improvement Property (QIP) and the newly expanded Qualified Production Property (QPP) framework.


100% Bonus Depreciation Is Back—With New Rules

One of the headline changes under H.R. 1 is the return of 100% bonus depreciation for qualifying property.


What’s new for 2025:

  • 100% bonus depreciation applies to eligible property acquired and placed in service after January 19, 2025

  • The deduction can create or increase a Net Operating Loss (NOL)

  • Unlike recent years, this is no longer a short-term phase-down—it is currently written as a permanent provision


This reset removes the pressure to rush projects simply to “beat the sunset,” but it also introduces new eligibility traps, especially around acquisition timing.


Qualified Improvement Property (QIP): One of the Most Powerful Tools

Qualified Improvement Property (QIP) remains a cornerstone strategy for owners of non-residential real estate.


What counts as QIP?

QIP generally includes:

  • Improvements made by the taxpayer

  • To the interior of an existing non-residential building

  • After the building was first placed in service


Common examples include tenant build-outs, interior renovations, lighting, flooring, HVAC updates, and reconfigurations of office or retail space.


Why QIP matters

QIP is classified as 15-year property, which makes it:

  • Eligible for 100% bonus depreciation (if you qualify under the new 2025 rules)

  • A powerful accelerator of first-year deductions

  • A key driver in cost segregation studies


Important limitation: the RPTB election

If your real estate business has elected to be a Real Property Trade or Business (RPTB) to avoid interest expense limits under Section 163(j), QIP must be depreciated using ADS (20-year straight line) and does not qualify for bonus depreciation.


This is where planning matters. In many cases, we model both paths to determine whether interest deductibility or accelerated depreciation creates more long-term value.


Qualified Production Property (QPP): A New 2025 Depreciation Opportunity

Qualified Production Property (QPP) is a new and separate depreciation concept introduced under H.R. 1 under IRC Section 168(n), effective beginning in 2025. It is not the same as bonus depreciation and not limited to traditional cost segregation strategies.


What is QPP—at a high level?

QPP generally refers to certain production-related buildings (normally 39-year property) that are:

  • Used as an integral part of a qualified production activity (manufacturing, production, or refining)

  • Originally placed in service by the taxpayer

  • Constructed starting after January 19, 2025 and before January 1, 2029

  • Placed in service before January 1, 2031

  • Located in the U.S. or a U.S. possession


Why QPP matters

  • QPP is eligible for a 100% depreciation deduction

  • The deduction is not subject to taxable income limitations

  • It can create or increase an NOL, similar to bonus depreciation

  • A specific QPP election is required


In limited cases, certain used property may also qualify, but the rules are narrow and include restrictions on prior use, related-party acquisitions, and carryover basis.


There is also a 10-year recapture period, which means early disposition requires careful modeling before claiming the full deduction. For clients involved in manufacturing, agricultural production, chemical production, or qualifying industrial operations, QPP introduces an entirely new depreciation lever starting in 2025.


Where Strategy Comes In

QIP and QPP are powerful—but they are not automatic wins. The value depends on:

  • Acquisition and placed-in-service timing

  • Entity structure and elections already in place

  • Interaction with interest expense limits, NOL planning, and exit timelines

  • Long-term capital strategy, not just year-one deductions


We are already seeing situations where taxpayers expect 100% deductions but only qualify for partial depreciation because of timing or structural issues.


Final Thoughts

The 2025 depreciation reset creates real opportunity—but only for those who understand the new rules and apply them deliberately.

  • QIP remains one of the most effective tools for accelerating deductions in commercial real estate

  • QPP opens a new lane for production-focused businesses starting in 2025

  • 100% bonus depreciation is back, but qualification is more technical than before


At LightUp Tax, we don’t treat depreciation as a checkbox—we treat it as a planning tool. If you’re considering renovations, new construction, cost segregation, or major capital investments in 2025 or beyond, now is the time to model your options before decisions are locked in.




If you’d like help evaluating whether QIP, QPP, or bonus depreciation fits into your broader tax strategy, our team is here to guide you.




 
 
 

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