The IRS has released Notice 2026-11, providing interim guidance to implement changes the One Big Beautiful Bill Act (OBBBA) made to the Section 168(k) additional first-year depreciation deduction rules. The notice states that the government intends to issue proposed regulations consistent with the interim guidance.
The OBBBA permanently restored mandatory 100% bonus depreciation for qualifying property that is acquired and placed in service after January 19, 2025. Taxpayers can elect to claim 100% bonus deprecation for plants used in a farming business that are planted or grafted after January 19, 2025. If the property’s original use does not begin with the taxpayer, the used property acquisition requirements must be met. As explained below, a taxpayer must claim bonus depreciation unless it makes an election out. For a detailed discussion on the changes made by the OBBBA, see our previous Alert, One Big Beautiful Bill Act Expands 100% Depreciation Expensing Opportunities.
Overview
Notice 2026-11 generally directs taxpayers to follow Treas. Reg. §1.168(k)-2, which provides guidance for bonus depreciation under the Tax Cuts and Jobs Act (TCJA). The notice includes new effective dates and depreciation percentages consistent with the OBBBA instead of the TCJA. To reflect the OBBBA effective dates for 100% bonus depreciation, the notice updates the acquisition and placed in service dates of September 27, 2017, and September 28, 2017, to January 19, 2025, and January 20, 2025, respectively. Importantly, those updates apply to the component election rules in the regulations, so a taxpayer can elect to claim 100% bonus depreciation on components acquired or self-constructed after January 19, 2025, that are part of a larger self-constructed property, even if the larger property is not eligible for 100% bonus depreciation. Because 100% bonus depreciation is now permanent and does not phase down, Notice 2026-11 removes the requirement that eligible property must be placed in service before January 1, 2027.
Property must be both acquired and placed in service after January 19, 2025, to be eligible for 100% bonus depreciation. To identify the acquisition date of property, taxpayers might need to analyze the facts and circumstances by reviewing contracts and determining when construction began. The notice states that qualifying property acquired before January 20, 2025, remains subject to TCJA bonus depreciation rules and, as discussed below, that taxpayers can elect to use TCJA rates for the first tax year ending after January 19, 2025.
BDO Insights
- Notice 2026-11 provides clarity for taxpayers and is good news because it indicates the government’s plan to apply the standards and rules in the existing regulations as opposed to creating new ones. Taxpayers now have guidance they can rely on when determining whether property is eligible for 100% bonus depreciation. They can apply the existing rules on qualified used property; the acquisition date of property, including the written binding contract rules; self-constructed property; and the component election.
- The notice confirms that at least for Section 168(k) bonus depreciation, the IRS intends to apply the written binding contract rules from the TCJA bonus depreciation regulations with only minor changes.
Qualified Sound Recording Productions
The OBBBA added qualified sound recording productions as property eligible for bonus depreciation for tax years ending after July 4, 2025. Qualified sound recording productions are sound recordings produced and recorded in the U.S. and for which a deduction would be allowed under Section 181. Notice 2026-11 specifies that those productions are treated as acquired on the date principal recording commences and considered placed in service at the time of initial release or broadcast.
BDO Insights
- For qualified sound recording productions that commence before January 1, 2026, a taxpayer can make a Section 181 election to deduct production costs of up to $150,000 in the aggregate per tax year. For qualified sound recording productions that commence after January 19, 2025, a taxpayer will have to choose whether to take a Section 181 deduction or bonus depreciation. For Section 163(j) purposes, claiming either bonus depreciation or the Section 181 deduction will be depreciation or amortization, respectively, added back to adjusted taxable income. Taxpayers should consider how claiming bonus depreciation or the Section 181 deduction will affect other code provisions, such as those on net controlled foreign corporation tested income, the base erosion and anti-abuse tax, or foreign-derived deduction-eligible income.
Bonus Depreciation Elections
As with the TCJA regulations, Notice 2026-11 provides that under Section 168(k)(7), a taxpayer can elect out of bonus depreciation for any entire class of qualified property placed in service during that tax year. That election is typically irrevocable. For qualified sound recording productions, the definition of a class of property is each separate production, so a taxpayer can elect out of bonus depreciation at the production level.
For the first tax year ending after January 19, 2025, the OBBBA allows taxpayers to make an election to claim the TCJA 2025 bonus deprecation amounts instead of 100% as follows:
- 40% bonus depreciation for qualified property (60% for long-production-period property and specified aircraft); and/or
- 40% for specified plants planted or grafted in the tax year.
Both of those elections are made under Section 168(k)(10).
Notice 2026-11 states that taxpayers can rely on its interim guidance for property placed in service in tax years beginning before the date the proposed regulations are published in the Federal Register. To take advantage of the interim guidance, taxpayers must follow the notice in its entirety for all eligible property placed in service in such tax years, beginning with the first tax year the taxpayer relies on the guidance.
BDO Insights
- Taxpayers that filed a tax return for their first tax year ending after January 19, 2025, before Notice 2026-11 was issued might want to consult their advisors to evaluate the positions taken on that return to be sure they are not inconsistent with Treas. Reg. §1.168(k)-2 as revised by the notice.
- Taxpayers should model the impact of their bonus depreciation deductions on total tax liability to determine the consequences of such depreciation on other code provisions and to identify beneficial tax strategies. Taxpayers engaged in production or resale activities might be required to include depreciation deductions in their Section 263A/UNICAP calculations, reducing the benefit of accelerated depreciation in the year claimed. Modeling will assist taxpayers in determining whether they should claim 100% bonus depreciation, elect out of bonus depreciation for some classes of qualified property to reduce their bonus depreciation, or elect to use the TCJA bonus rate for the first tax year ending after January 19, 2025.
- The impact of bonus depreciation on state returns, especially for states that do not follow federal code provisions or specifically decouple from federal bonus depreciation, should be considered.
- Partnerships and S corporations claiming bonus depreciation under the new OBBBA rules will pass deductions through to their owners as part of their allocations of taxable income or loss. Individuals and closely held C corporations that are partners in partnerships claiming significant deductions for bonus depreciation should be mindful of various loss limitations that could affect the amount of benefits they receive. That is particularly so when those partners are not active in the partnership’s trade or business or their tax bases include a share of the partnership’s nonrecourse liabilities.
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