Manufacturing Facilities
Process equipment is personal property. The factory building is 39-year property unless an elective qualified-production-property allowance applies to a qualifying portion. Section 168(n) is temporary, elective, and excludes office, parking, sales, and research space. This page draws no eligibility conclusion.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Factory buildings are generally 39-year nonresidential real property. Machinery is generally §1245 property with a recovery period set by asset or activity class.
- Scott Paper allocated mill electrical systems by function. ATG Chapter 8.A describes design-load allocation of primary and secondary electrical distribution.
- The pharmaceutical and auto-manufacturing matrices treat process utilities and equipment-access catwalks as personal property and building utilities and building mezzanines as 39-year property.
- Section 168(n) QPP is an elective 100% allowance for a defined portion of nonresidential real property used as an integral part of a qualified production activity, with construction and placed-in-service windows.
- Office, administrative, lodging, parking, sales, research, software-development, and engineering space are excluded. Do not conclude that any plant qualifies (flag F-03).
- Bonus depreciation under §168(k) as of 2026 can apply to qualified equipment acquired after January 19, 2025. QPP is a separate election.
A factory study has two layers. First, MACRS classification: machinery and dedicated process utilities versus the building and its structural components. Second, for some projects after 2025, whether a portion of the nonresidential building is qualified production property under §168(n). Those layers are different statutes. Identifying 7-year process equipment does not, by itself, make the shop floor QPP.
Treas. Reg. §1.48-1(c) treats production machinery as tangible personal property even when attached to a building. Treas. Reg. §1.48-1(d) discusses other tangible property used as an integral part of manufacturing — not including a building and its structural components. Treas. Reg. §1.48-1(e)(2) keeps walls, floors, central HVAC, general wiring, plumbing fixtures, and sprinklers with the building, with a sole-justification exception for machinery installed solely to meet temperature or humidity needs essential for other machinery or for processing materials.
Publication 5653 includes a pharmaceutical and biotechnology matrix and an auto-manufacturing matrix. Process chilled water dedicated to equipment is personal property in the auto-manufacturing table (class 37.11, 7-year); building chilled water is 39-year. Equipment-access catwalks are 7-year; building catwalks and mezzanines are 39-year. Specially designed equipment foundations can be personal property; increased thickness alone is not sufficient. Other manufacturing activity classes (20.x–39.x) vary by industry. Rev. Rul. 2003-81 and Publication 946 Example 1 show that some activity classes include their own land improvements.
Scott Paper Co. v. Commissioner, 74 T.C. 137 (1980), allocated electrical systems by function. The ATG says a properly applied functional allocation of primary and secondary electrical distribution should not be challenged, and that allocation of HVAC is not appropriate. Do not treat a percentage of every pipe and duct as personal property because some of it serves a machine.
Section 168(n), added by Public Law 119-21, allows an elective 100% first-year allowance for the portion of nonresidential real property the taxpayer uses as an integral part of a qualified production activity — manufacturing, chemical production, agricultural production, or refining that results in substantial transformation. Construction must begin after January 19, 2025 and before January 1, 2029. The property must be placed in service in the United States or a possession after July 4, 2025 and before January 1, 2031. Change-of-use recapture applies. Notice 2026-16 is interim guidance. Taxpayers may rely on it until proposed regulations are issued. This page does not conclude that any reader’s plant is eligible.
This article is educational information, not tax advice. Proposed Super Intelligence process overlays are explanatory only.
Process property versus the building
Process equipment, special tools, and dedicated process electrical, plumbing, gas, and chilled water are the usual §1245 candidates. Building power, comfort HVAC, restrooms, offices, and fire protection that protect the building stay §1250. Bollards and guardrails that protect equipment are personal property in the auto-manufacturing matrix; bollards that protect the building are not.
Never say a foundation, catwalk, or electrical feeder “is” 5- or 7-year property in every plant. Activity class and the asset-versus-activity rule in Rev. Rul. 2003-81 still have to be applied. Decorative millwork is 7-year personal property with no class life in the pharmaceutical matrix — another industry-specific row, not a factory-wide rule.
Qualified production property — what the statute excludes
The statute excludes portions used for offices, administrative services, lodging, parking, sales, research, software development, or engineering, and other unrelated functions. A lessor generally cannot qualify for property used by a lessee. Property required to use ADS is excluded. QPP is treated as §1245 property and is added to §1245(a)(3) as subparagraph (G).
Discuss the election, the portion allocation, and recapture with a CPA. Interim guidance can change when proposed regulations are published. Do not treat an entire campus as QPP because a shop floor qualifies, and do not treat QPP as a substitute for a cost segregation study of equipment.
Documentation
Process flow diagrams, equipment lists, foundation details that show more than thickness, chilled-water schematics that separate process from building loops, and electrical load letters are the records Chapter 4 and Chapter 8.A expect. New plants can use actual contractor and vendor costs. Acquired plants need land first and, if a written §1060 allocation exists, a Peco Foods review.
AmeriSouth is an apartment case. Peco Foods involved poultry-processing plants and a binding written allocation. That is the manufacturing-adjacent caution: the allocation schedule can matter as much as the take-off.
Bonus depreciation as of 2026
Qualified property acquired after January 19, 2025 is eligible for 100% bonus depreciation under §168(k) and Notice 2026-11. Process equipment with a recovery period of 20 years or less is the usual §168(k) candidate. The 39-year building is not qualified property under §168(k). QPP, if elected and if the portion qualifies, is a separate 100% allowance under §168(n).
Self-constructed equipment follows the more-than-10% and physical-work rules in Notice 2026-11. Binding contracts on or before January 19, 2025 stay on the §168(k) phase-down. Educational information, not tax advice.
Limits (flag F-03)
QPP is new, temporary, and elective. This page describes the windows and exclusions and does not decide eligibility for any plant. Related-party lease details in Notice 2026-16 were not fully extracted for this inventory.
Do not invent a typical process-property percentage. Industry matrices cover auto manufacturing and pharma/biotech, not every SIC code. Apply the activity class in Publication 946 Appendix B to the actual activity.
Sources
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- 3IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.
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