The Treasury Department and the IRS on January 14, 2026, released Notice 2026-11, the first detailed guidance on the permanent 100% additional first-year depreciation deduction restored by the One, Big, Beautiful Bill Act. The notice covers qualified property acquired after January 19, 2025. For investors in rental real estate and owners of operating businesses, it settles several timing questions that determine whether a purchase qualifies for a full write-off in year one.
What changed
Before the 2025 law, bonus depreciation was being phased down and stood at 40%, according to Thomson Reuters. The law made the 100% rate permanent for property acquired and placed in service after January 19, 2025. Notice 2026-11 provides interim rules while formal regulations are drafted. Its main points, as published in Internal Revenue Bulletin 2026-06:
- Acquisition date. Property is not treated as acquired after the date a written binding contract for it was signed. A deal signed before January 20, 2025, generally does not qualify for the new 100% rate even if the closing came later.
- Self-constructed property. Construction begins when physical work of a significant nature starts. A safe harbor treats that test as met once more than 10% of total cost has been paid or incurred.
- Component election. Taxpayers may treat components of a larger self-constructed project acquired or built after January 19, 2025, as separately eligible.
- Reduced-rate election. For the first tax year ending after January 19, 2025, taxpayers may elect 40% instead of 100% (60% for certain longer-production property and aircraft). They may also opt out by class of property, using existing procedures on Form 4562.
- Reliance. Taxpayers may rely on the notice for property placed in service before final regulations are published, provided they apply it consistently.
The notice also adds qualified sound recording productions as a new category, a detail of interest mainly to the music industry.
Who is affected
Bonus depreciation applies to property with a recovery period of 20 years or less, which excludes the building shell of a rental property. IRS Publication 946 assigns residential rental buildings a 27.5-year recovery period and nonresidential real property 39 years. Land improvements such as fences, roads and sidewalks are 15-year property, and many fixtures and equipment fall into 5- or 7-year classes.
That is where cost segregation comes in. A cost-segregation study is an engineering-based analysis that separates a building's purchase price into these shorter-lived components. With a permanent 100% rate, any portion reclassified into 5-, 7- or 15-year property can be deducted in full in the year the property is placed in service. High-income owners of apartment buildings, short-term rentals, medical offices and other commercial property are the most frequent users.
The after-tax math
Example, with round, illustrative numbers: an investor buys a residential rental property in March 2025 for $2,000,000, with $400,000 allocated to land and $1,600,000 to the building. Without a study, the full $1,600,000 is depreciated over 27.5 years, or roughly $58,000 a year. Suppose a cost-segregation study reclassifies $400,000 of the building cost into 5-, 7- and 15-year property.
| Approach (example) | Year-one depreciation |
|---|---|
| No study, 27.5-year schedule on $1,600,000 | About $58,000 |
| Study, $400,000 reclassified, 100% bonus | About $444,000 ($400,000 plus about $44,000 on the remaining $1,200,000) |
| Study, 40% election on the $400,000 | About $204,000 before regular depreciation on the rest of the reclassified basis |
First-year figures here ignore mid-month and partial-year conventions. The deduction does not create new value; it shifts depreciation forward. Whether a larger first-year deduction reduces tax right away depends on the owner's other income and on the passive activity rules that often limit rental losses for people who are not real estate professionals.
When a smaller write-off may be the goal
The 40% election exists because a full write-off is not always efficient. Households in these situations often consider the lower rate:
- A year with unusually low income, when deductions would offset income taxed at low rates or produce suspended losses.
- An expectation of materially higher income in later years, when deductions may be worth more.
- A plan to sell the property within a few years, since accelerated depreciation can increase the gain taxed on sale.
- State tax returns that do not follow federal bonus depreciation, which can create separate state schedules.
These trade-offs are worth discussing with a CPA before a return is filed, because elections are generally made on the return for the year the property is placed in service.
What to watch
Notice 2026-11 is interim guidance. Proposed regulations are expected to follow, and they may refine the binding contract and self-construction rules. Investors who signed purchase agreements around January 2025 will want to confirm contract dates, since that single date decides whether the 100% rate is available at all.
Sources
- First reported Treasury, IRS issue guidance on the additional first year depreciation deduction amended as part of the One, Big, Beautiful Bill (IR-2026-06) — IRS
- Internal Revenue Bulletin 2026-06 (Notice 2026-11) — IRS
- IRS Provides Guidance on Post-OBBB Bonus Depreciation — Thomson Reuters
- Publication 946, How To Depreciate Property — IRS
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