IRS Notice 2026-11: New Guidance on Bonus Depreciation

How the Latest IRS Clarification Affects Cost Segregation Studies

At Veritax Advisors, we're always on the lookout for updates that can help our clients optimize their tax strategies and improve cash flow. The recent release of IRS Notice 2026-11 on January 14, 2026, marks a significant shift in depreciation rules, courtesy of the One Big Beautiful Bill Act (OBBBA). This notice provides interim guidance on the now-permanent 100% additional first-year depreciation deduction under IRC Section 168(k), bringing back one of the best aspects of the 2017 TCJA.

In this blog post, we'll break down the key elements of the notice and explore how it impacts cost segregation studies, a strategy proving more valuable than ever for real estate owners and capital-intensive businesses.

Understanding IRS Notice 2026-11: A Quick Overview

The OBBBA, enacted on July 4, 2025, amended Section 168(k) to make the 100% bonus depreciation deduction permanent for qualified property acquired and placed in service after January 19, 2025.  

This reverses the phase-down under the Tax Cuts and Jobs Act (TCJA), which had reduced the deduction to 40% for 2025 and was set to drop further before expiring.  

The notice serves as a bridge, announcing that the Treasury and IRS plan to issue proposed regulations consistent with its interim guidance.  

Taxpayers can rely on sections 3 through 5 of the notice for property placed in service in taxable years beginning before the proposed regulations are published, as long as they apply the rules consistently across all eligible property in those years.  

Key Provisions of the Notice

• Permanent 100% Deduction: For qualified property, generally MACRS property with a recovery period of 20 years or less, including certain computer software, water utility property, and qualified improvement property, the deduction is now 100% for assets acquired after January 19, 2025.  
• This applies without the prior TCJA deadlines or phase-outs. For self-constructed property or components, the notice substitutes January 19/20, 2025, dates into existing regulations like §1.168(k)-2 for determining acquisition timing (e.g., via binding contracts or when physical work begins).  
• Expansion to Qualified Sound Recording Productions: A notable addition from OBBBA Section 70434 is the inclusion of U.S.-produced sound recordings as qualified property under Section 168(k)(2)(A)(i)(VI), effective for productions commencing in taxable years ending after July 4, 2025.  
• These are placed in service upon initial release or broadcast, and taxpayers can elect out under Section 168(k)(7) by treating each production as a separate class.  

Elections Available:  

• Under Section 168(k)(5), taxpayers can elect the 100% deduction for specified plants (e.g., fruit-bearing trees) planted or grafted after January 19, 2025, with the election made via a statement on the tax return.
• Section 168(k)(10) allows an election to claim a reduced 40% deduction (or 60% for longer-production-period property or certain aircraft) instead of 100% for property placed in service in the first taxable year ending after January 19, 2025. This can be useful for managing taxable income or utilizing other credits.
• Opt-out elections under Section 168(k)(7) remain available for specific classes of property.  
• Reliance and Applicability: The forthcoming regulations will apply to property placed in service in taxable years beginning on or after their publication date.  

Until then, the interim rules provide certainty, reducing compliance uncertainty for businesses planning capital expenditures.

This guidance builds on existing TCJA-era regulations, with targeted substitutions to align with OBBBA's changes, ensuring a smooth transition for taxpayers.  

What Is Cost Segregation, and Why Does It Matter?

For those new to the concept, a cost segregation study is a detailed engineering-based analysis that reclassifies components of real property (like buildings) into shorter depreciation lives (typically 5, 7, or 15 years) instead of the standard 27.5 years for residential or 39 years for commercial property.  

Think of items like electrical systems, plumbing fixtures, flooring, land improvements, or specialized HVAC components that can be segregated from the building's structural elements.  

This acceleration of deductions boosts near-term cash flow by reducing taxable income sooner, which is especially beneficial for real estate investors, developers, manufacturers, and businesses with significant fixed assets.  

Even before OBBBA, cost segregation was a proven strategy, but the phase-down of bonus depreciation had diminished its punch in recent years.  

How IRS Notice 2026-11 Elevates Cost Segregation Strategies

The permanent reinstatement of 100% bonus depreciation under OBBBA, and clarified in Notice 2026-11, transforms cost segregation from a solid tactic into an essential strategy .  

Here's why:

• Immediate Full Expensing for Reclassified Assets: Bonus depreciation applies to qualified property with recovery periods of 20 years or less.  
• A cost segregation study identifies more of these assets within a building, allowing taxpayers to deduct 100% of their cost in the year placed in service, rather than spreading it over shorter but still multi-year periods.   For example, on a $3 million commercial building, a study might reclassify $600,000 to 5- or 15-year property, all eligible for immediate write-off.   This can more than double first-year tax savings compared to the pre-OBBBA 40% bonus rate.  
• Long-Term Planning Certainty: The permanence eliminates the uncertainty of the TCJA's phase-out, enabling better forecasting for capital expenditures.  
• Businesses can now confidently integrate cost segregation into acquisitions, constructions, or renovations, knowing the 100% deduction is here to stay for post-January 19, 2025, assets.  
• Enhanced Benefits for Specific Industries: For manufacturers, the notice's guidance pairs well with qualified production property (QPP), where cost segregation can map facilities to maximize bonus-eligible assets. Real estate investors see amplified cash flow for reinvestment or debt service.  
• With elections to opt out or reduce the deduction, this flexibility allows tailoring to individual tax situations, like preserving net operating losses or credits.  

Increased Imperative for Studies: With full expensing back, it's now more critical to conduct defensible cost segregation studies for any real property transaction to capture these deductions.  

The notice's reliance provisions ensure you can apply this strategy immediately, without waiting for final regs.  

In essence, Notice 2026-11 doesn't just restore bonus depreciation, it amplifies the ROI on cost segregation potentially recovering millions in tax savings for large projects.  

For instance, one analysis showed a $2.239 million first-year tax benefit (at a 25% rate) on a hypothetical property under OBBBA, versus about half that under the old 40% rate.

Final Thoughts: Time to Reassess Your Assets

We recommend reviewing your upcoming capital projects or recent acquisitions to see if a cost segregation study makes sense under this new guidance. Whether you're a real estate developer, manufacturer, or investor, the combination of permanent 100% bonus depreciation and targeted asset reclassification can dramatically improve your bottom line. Contact us today to discuss how IRS Notice 2026-11 applies to your situation, we're here to help you navigate these opportunities with confidence.

Reach out to schedule a time.