IRS Issues Interim Guidance on New 100% Bonus Depreciation

If you’re planning capital investments or asset purchases, the IRS’s new interim guidance on 100% bonus depreciation brings welcome clarity. Notice 2026-11 outlines what qualifies, when assets are considered acquired or placed in service, and how different business structures are affected — helping you make smarter, more confident tax decisions.

Overview: IRS Notice 2026-11 and why it matters

The IRS has issued Notice 2026‑11, providing interim guidance on the reinstated 100% bonus depreciation rules under Section 168(k). Taxpayers may rely on this guidance until Treasury releases proposed regulations, which are expected to align with the notice.

Below is a clear breakdown of what counts, what doesn’t, and how strategic planning (including cost segregation) can enhance benefits.

Want a broader look at depreciation strategies? Explore our comprehensive overview on Section 179 and bonus depreciation.

Interim IRS guidance defines eligible versus ineligible property

What property qualifies for 100% bonus depreciation under IRS Notice 2026-11?

The notice confirms that bonus depreciation applies to several categories of short life assets, including:

• Tangible property with a recovery period of 20 years or less.
• Qualified improvement property (QIP) - interior improvements made to non-residential buildings.
• Computer software.
• Certain film, television, and live theatrical production costs.
• Specific fruit or nut bearing plants.

For real estate owners, QIP is often the most meaningful category, as it can apply to tenant improvements, lobby upgrades, interior remodels, and other non-structural building enhancements.

What does not qualify?

Bonus depreciation generally is not available for property used by certain utilities, for property used primarily outside the United States, or for assets acquired from related parties or through certain tax‑free transactions. These exclusions reflect longstanding anti‑abuse rules and remain important considerations when structuring acquisitions or internal transfers.

Used property can qualify — with important limitations

One of the most advantageous features for property owners is that used property can qualify for bonus depreciation. To do so, all of the following must be true:

• The taxpayer had no prior direct or indirect ownership interest
• The property was not purchased from a related party
• The taxpayer did not previously use and re-acquire the property

The IRS also outlines anti-abuse rules designed to prevent artificial “refreshing” of assets through circular sales or sale leaseback transactions. When acquiring existing real estate, particularly value add or repositioning projects, these rules come into play when evaluating bonus eligible components.

Why timing matters for bonus depreciation eligibility

The timing of when property is acquired and when it is placed in service continues to play a critical role in determining eligibility for bonus depreciation.

Acquisition timing

When purchased under a written binding contract, property is considered acquired when the taxpayer:

• Enters into a binding written contract that is enforceable under state law
• Does not limit damages to a nominal amount
• Is not merely a revocable option

This distinction is particularly important in real estate transactions, where purchase agreements frequently span multiple tax years.

Placed‑in‑service timing

Placed‑in‑service determinations depend on the nature of the asset. The IRS reiterates that the analysis can differ for new construction, long‑production‑period property, and systems that operate independently within a larger building.

In practice, certain building systems, such as electrical panels, plumbing assemblies, or HVAC units, may be placed in service before an entire building or renovation project is completed. As a result, taxpayers may be able to accelerate deductions for substantial portions of their capital spending.

Special electing out of bonus depreciation under IRS guidance

Taxpayers may elect to claim bonus depreciation at the 40% rate (or 60% for certain property having longer production periods or certain aircraft). This election must be made for all eligible class of assets instead of by class under general bonus depreciation election out rules. This special rule offers meaningful flexibility in managing overall tax outcomes. This option can be particularly useful when a taxpayer is seeking to smooth taxable income across multiple years, manage the creation or utilization of net operating losses, or limit the tax impact on pass‑through owners whose individual circumstances may differ.

The IRS notice provides guidance on how and when this election can be made but all election out of bonus depreciation is irrevocable.

How entity structure affects bonus depreciation

The IRS guidance also clarifies how bonus depreciation applies across common ownership entities.

How does bonus depreciation apply to partnerships and S corporations?

• Bonus depreciation is determined at the entity level
• Certain elections must be made by the entity, not the partners or shareholders

How does bonus depreciation apply for consolidated groups?

• Basis adjustments apply to transfers within the group
• Anti-abuse rules prevent shifting assets to create bonus depreciation benefits

These distinctions matter for property owners who hold assets through multi-tiered structures, joint ventures, or REIT subsidiaries.

IRS provides interim guidance on transition rules and safe harbors

The IRS also provides a series of transition rules and safe harbors designed to ease compliance as taxpayers navigate the updated bonus depreciation framework.

These provisions apply to property acquired under contracts executed before the Tax Cuts and Jobs Act, to long‑production‑period property that spans multiple tax years, and to projects involving disaster relief or certain government contracts.

These rules are particularly important for taxpayers managing multi‑year procurement or construction timelines, where acquisition dates and production schedules often intersect with changing tax laws.

Cost segregation: A critical tax strategy

Bonus depreciation becomes most valuable when paired with a cost segregation study. A cost segregation study identifies building components that can be depreciated over shorter lives — many of which are eligible for 100% bonus depreciation.

This includes components of:

• Electrical systems
• Plumbing
• HVAC
• Site improvements
• Specialized finishes

By reclassifying these assets into shorter life categories, property owners can accelerate deductions and significantly improve early year cash flow. This is particularly impactful for:

• Newly constructed buildings
• Purchased properties with substantial depreciable components
• Renovation or repositioning projects

How CLA can help you apply recent IRS guidance

With bonus depreciation restored to 100%, the stakes and opportunities are large. The new IRS guidance helps clarify the rules, but determining the right strategy requires technical experience and careful planning.

CLA’s cost segregation teams help property owners:

• Identify bonus eligible components
• Model the cash flow impact of accelerated depreciation
• Evaluate entity level and election implications
• Implement studies efficiently and transparently
• Integrate findings with broader tax and investment strategies

Whether you're planning a capital project or acquiring a property, our team can help you unlock the full value of these enhanced incentives.

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