The IRS has published Notice 2026-11, providing official interim guidance on how taxpayers can claim the permanent 100% bonus depreciation deduction under the One Big Beautiful Bill Act (OBBBA). For real estate investors using cost segregation services, this notice clarifies critical acquisition date rules, confirms the component election remains available, and establishes that taxpayers can rely on this guidance immediately.
Here's what property owners need to know.
The January 19, 2025 Acquisition Date Is the New Threshold
The OBBBA restored permanent 100% bonus depreciation for qualified property acquired after January 19, 2025. Notice 2026-11 confirms that the IRS will apply the existing regulatory framework under Section 1.168(k)-2, simply swapping in the new date where September 27, 2017 previously appeared.
This continuity is good news for investors and tax professionals. The acquisition date rules, written binding contract provisions, and self-constructed property standards that have governed bonus depreciation since the Tax Cuts and Jobs Act remain unchanged in structure. Only the threshold date has moved.
For most real estate investors, the question is simple: when did you acquire the property? If you purchased a building after January 19, 2025, or entered into a written binding contract after that date, the property qualifies for permanent 100% bonus depreciation on eligible components identified through a cost segregation study.
Written Binding Contracts Still Determine Acquisition Date
Notice 2026-11 reinforces that property is not treated as acquired after January 19, 2025, if a written binding contract existed on or before that date. This prevents taxpayers from claiming the new permanent rate on property they were already contractually committed to purchasing before the OBBBA took effect on January 19, 2025.
To qualify as binding under these rules, a contract must be enforceable against the taxpayer under state law and must expose the parties to actual damages if breached. Agreements that cap potential damages through liquidated damages clauses fall outside this definition.
What if I signed a contract before January 20, 2025, but closed after?
The acquisition date follows the contract, not the closing, but with an important nuance. Under the regulations, the acquisition date is the latest of: the contract signing date, the date the contract becomes enforceable under state law, the end of any cancellation periods, or the date all contingencies are satisfied.
An investor who signed a binding purchase agreement on January 15, 2025, with no contingencies, and closed escrow on March 1, 2025, is treated as having acquired the property in January. That property falls under the TCJA phasedown rules (40% for 2025) rather than the permanent 100% rate under the OBBBA.
However, if the January 15 contract included inspection or financing contingencies that weren't satisfied until January 25, the acquisition date shifts to January 25—potentially qualifying the property for permanent 100% bonus depreciation.
This timing distinction carries real consequences for investors who were negotiating deals during the transition window. The date the pen hits paper on a binding agreement controls which depreciation regime applies.
The Component Election Creates Planning Opportunities
One of the most valuable provisions confirmed in Notice 2026-11 is the continued availability of the component election under Section 1.168(k)-2(c). This election allows taxpayers to claim 100% bonus depreciation on individual components of larger self-constructed projects, even when overall construction began before January 20, 2025.
The mechanics work like this: the election applies when the larger self-constructed property began construction before January 20, 2025, but specific components were acquired or began construction after January 19, 2025. Both conditions must be met. Those later-acquired components can separately qualify for permanent 100% bonus depreciation. The taxpayer must make this election by attaching a statement to their timely filed return for the year the larger property enters service.
How does the component election apply to real estate development?
Picture a developer who started foundation work on a multifamily project in October 2024 but executed subcontracts for electrical systems, HVAC equipment, and interior finishes in February 2025. The component election potentially allows those later-contracted building systems to receive permanent 100% bonus depreciation treatment, independent of when the overall project commenced.
This creates genuine planning value for projects currently under construction. Developers should audit their subcontract timelines and evaluate whether the component election could accelerate deductions on portions of active projects.
The 10% Safe Harbor Remains in Effect
For self-constructed property, determining exactly when construction "begins" requires analysis. The IRS looks at when physical work of a significant nature commences, which depends on project-specific facts and circumstances.
Notice 2026-11 confirms that taxpayers can still rely on the 10% safe harbor established in the existing regulations. Under this threshold test, construction is deemed to begin when the taxpayer has incurred or paid more than 10% of the total project cost. Importantly, this calculation backs out both land value and soft costs like architectural fees, engineering studies, permits, and financing expenses.
This safe harbor offers clarity when documenting the precise start of physical construction proves difficult. If hard construction costs remain below 10% of the total budget (excluding land), the project has not yet "begun" for purposes of these acquisition date rules.
What costs count toward the 10% threshold?
Only direct construction expenditures factor into this calculation. Materials, labor, and contractor payments for actual building work qualify. Professional fees, municipal approvals, loan costs, and other predevelopment expenses do not move the needle.
For cost segregation purposes, this matters because the detailed asset-by-asset analysis performed during a site visit will identify which components qualify for bonus depreciation based on their individual acquisition or construction timing.
The Section 168(k)(10) Election Allows a Lower Percentage
Notice 2026-11 also addresses the Section 168(k)(10) election, which permits taxpayers to claim a reduced bonus depreciation percentage rather than the full 100%. This election is available only for property placed in service during the taxpayer's first taxable year ending after January 19, 2025, a one-time window, not an ongoing option. For calendar-year taxpayers, this means property placed in service in 2025. Investors can elect 40% (or 60% for certain long production period property) instead of 100%.
Why voluntarily take less depreciation? The answer lies in individual tax circumstances. Investors who cannot currently absorb large depreciation deductions may prefer spreading benefits over time rather than generating suspended passive losses.
Others may want to preserve basis for strategic reasons or manage taxable income in particular years. Real Estate Professional Status and passive activity limitations often drive these decisions.
Does electing 40% bonus depreciation affect recapture?
It does. Depreciation recapture under Section 1245 applies to the bonus depreciation actually claimed, not the theoretical maximum available. Selecting a lower percentage reduces potential recapture exposure if the property sells before full cost recovery.
For investors weighing recapture concerns against a cost segregation study, this election offers one planning lever. That said, most property owners benefit more from claiming the full 100% and addressing recapture through other techniques like like-kind exchanges or installment sales.
The Election to Opt Out Entirely Remains Available
Beyond electing a reduced percentage, Notice 2026-11 confirms that the Section 168(k)(7) election remains in effect. This allows taxpayers to elect out of bonus depreciation entirely for any class of property placed in service during the tax year. Investors who prefer straight-line depreciation for specific asset classes, whether for passive loss management, basis preservation, or other planning reasons, retain that flexibility.
Immediate Reliance Is Permitted
Section 6 of Notice 2026-11 explicitly authorizes taxpayers to rely on this interim guidance for property placed in service before the final regulations are published. The IRS conditions this reliance on applying the guidance consistently across all eligible property in those tax years.
Translation: investors need not wait for proposed or final rules to claim permanent 100% bonus depreciation on qualifying property. A cost segregation study performed today on property acquired after January 19, 2025, can confidently apply the 100% rate.
Qualified Sound Recording Productions Now Qualify
Notice 2026-11 also addresses a new category of qualified property added by the OBBBA: sound recording productions. This provision primarily affects the music and entertainment industry rather than real estate investors, but it demonstrates the expanded reach of bonus depreciation under the new law.
What This Means for Your Cost Segregation Strategy
For property owners working with R.E. Cost Seg, Notice 2026-11 delivers welcome certainty. The framework governing cost segregation studies and bonus depreciation claims remains structurally consistent with what has applied since 2017. The meaningful changes are the new acquisition date threshold and the permanent nature of the 100% rate going forward.
Investors who acquired property after January 19, 2025, should move forward with cost segregation studies to capture the full benefit of permanent 100% bonus depreciation. Those with properties straddling the transition period should carefully document contract dates and construction timelines to determine which regime governs.
For existing properties placed in service in prior years where cost segregation was never performed, the Form 3115 change in accounting method remains available. This approach allows investors to claim previously missed depreciation through a Section 481(a) adjustment, capturing bonus depreciation benefits on properties they already own without amending prior year returns.
Next Steps
If you acquired property after January 19, 2025, or have a development project currently underway, now is the time to evaluate your cost segregation opportunities. The IRS has confirmed that taxpayers can rely on this guidance immediately.
R.E. Cost Seg provides comprehensive cost segregation services, including detailed engineering-based studies and site visits to identify all qualifying property components. Our team coordinates directly with your CPA to ensure proper implementation and documentation.
See how much you could save with a cost segregation study. Contact R.E. Cost Seg
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