A new administration typically means new tax policies, and tax planners have been waiting since the November election to see what would change. Now that the so-dubbed “One Big Beautiful Bill” (OBBB) has been finalized, the tax planning process can begin. As tax planners, we work with many clients who own a business, so we are especially on the lookout for tax provisions that give businesses a break. Fortunately, the OBBB contains several. In our last blog, we covered two of them: 100% bonus depreciation and 100% R&D expensing. Today, we’ll look at another three: the qualified production property deduction, the new qualified opportunity zones program, and changes to qualified small business stock.
Qualified Production Property
This is a brand new deduction introduced by the OBBB, and its objective is to boost domestic manufacturing. The benefit applies to property used for manufacturing, producing, or refining tangible personal property, which has been given the new label of “qualified production property” (QPP). A few other requirements apply: the property must be nonresidential. It can be new or used, but both are subject to timeline restrictions. For newly-constructed properties, construction must occur between January 20, 2025 and December 31, 2028. For existing properties being transformed into a manufacturing facility, the construction timeline is the same, but the property also cannot have been used for a “qualified production activity” from January 1, 2021 to May 12, 2025).
What is a “qualified production activity”? In other words, what can the property be used for and still receive this deduction? The property must be in the business of transforming materials into a product. Most qualifying facilities will be in the realm of agricultural and chemical production. Food and beverage producers may qualify, but restaurants do not—there is a specific stipulation that the food or beverages cannot be prepared in the same building where they are sold.
Before the introduction of this “qualified production property” category, manufacturing buildings were classified as “nonresidential real property.” These properties could take a depreciation deduction, but the required amortization is 39 years long. Under the OBBB, manufacturers and similar can fully deduct the cost of a qualifying building in the year it is placed in service. The building must be activated for business purposes between July 4, 2025 and January 1, 2031 to qualify for this benefit.
A key nuance to the provision is that not every part of the property may qualify for this deduction. The rules state that the 100% depreciation deduction cannot be used on portions of the property used for offices or administrative services, lodging, parking, sales activities, research and development, and other purposes unrelated to manufacturing. This means that the value of the property will need to be broken down into these categories to determine how much is actually eligible for the immediate tax break.
Lastly, to qualify for the deduction, the business cannot change the use of the property within 10 years after placing it in service. If any changes are made, they will have to pay back the deduction.
Qualified Opportunity Zones
Qualified opportunity zones (QOZ) are not new, but under the OBBB, they are now permanent and reconfigured. To receive a “QOZ” designation, a region must count as economically distressed according to certain “low-income” criteria. Regions are nominated by their state officials and must be certified by the IRS. In 2026, governors will have the opportunity to nominate new areas. The new program, set to launch in 2027, is expected to favor rural areas and to restrict the number of QOZ regions compared to before.
The purpose of QOZ areas is to encourage investors to fund businesses operating in the area.
When QOZ were first created in 2017, investors began taking advantage of qualified opportunity funds (QOF)—an investment vehicle that is organized specifically to invest in a QOZ property. With a QOF, investors could defer certain gains up until January 1, 2027. Since those gains will soon become taxable, investors will need to decide whether to pay them this year or next. The IRS has yet to provide details on the new program, but it is not expected to affect that 2027 deadline for gains from previous QOZ properties.
Qualified Small Business Stock
Qualified small business stock (QSBS), sometimes called Section 1202 stock, is also not new but has received a refresh via the OBBB. Somewhat similar to the QOZ program, this tax incentive was created to encourage investors to fund small businesses. The major draw is that when investors sell QSBS, they can exclude up to 100% of their capital gains. This benefit is subject to a cap, which has been updated as of July 4, 2025. After that date, eligible capital gains cannot exceed either $15 million or 10 times the adjusted tax basis—whichever is greater.
Not all small businesses can issue QSBS. Under the updated law, the business must:
- Be a C corporation
- Have no more than $75 million in assets
- Be actively engaged in a qualified trade or business
On that last point, keep in mind that personal services do not qualify, such as health, law, financial services, hospitality businesses, and others. These requirements could be an incentive for business owners that don’t currently have a C corporation to change entity types, so consider whether that is a recommendation worth making to your business owner clients.
Previously, QSBS had to be held for at least five years to qualify for that 100% capital gains exclusion. This is the main thing that changed under the OBBB. Now there is a tiered benefit depending on how long the stock has been held:
- 50% exclusion if stock is held for 3 years
- 75% exclusion if stock is held for 4 years
- 100% exclusion if stock is held for 5 years
The Section 1045 rollover also still applies, which allows investors who have held their QSBS for at least six months to roll over the gains to new QSBS and still defer taxes on those gains.
Keep in mind that investors who already have QSBS don’t qualify for these provisions, but newly-purchased QSBS is eligible.
Summary
Even if your previous tax plans have become outdated because of the OBBB, new benefits are available, and a wide range of businesses can take advantage of them. Like with all new legislation, the key is not to let the details bog you down. Many of the new provisions contain specific start and end dates and new terminology, but by exploring the OBBB rule by rule, you can decode the changes and guide your clients through them. The process of updating your recommendations to each client can also be made easier by investing in tax planning software if you haven’t already.
To increase your understanding of the OBBB and how to apply its provisions, sign up to become a Certified Tax Planner today.
