This article was written by Ashley Sullivan, CCSP, Partner MSC, President, American Society of Cost Segregation Professionals.
Notice 2026‑11 marks a significant turning point in the bonus depreciation landscape, reaffirming the long‑standing §168(k) framework while updating key dates to reflect the One Big Beautiful Bill Act (OBBBA). Although the mechanics remain largely unchanged, the new acquisition cutoff date and the elimination of placed‑in‑service deadlines create substantial planning opportunities — particularly for construction projects and cost segregation analyses.
Under OBBBA and Notice 2026‑11, qualified property acquired after January 19, 2025, qualifies for permanent 100% bonus depreciation with no scheduled phase‑down. Property acquired on or before that date remains subject to the TCJA phase‑down rules. The Notice effectively substitutes the TCJA’s original dates with new ones:
In short: the rules didn’t change — the dates did.
Notice 2026‑11 confirms that the IRS will continue applying the familiar TCJA transition rules to determine acquisition and placed‑in‑service dates. Taxpayers must continue relying on:
The only modification is the updated cutoff date:
Replace September 27, 2017 → January 19, 2025
These rules remain the backbone for determining whether a project falls under the TCJA phasedown rates or OBBBA’s permanent 100% bonus depreciation.
A. Placed‑In‑Service Deadlines Eliminated
Under OBBBA, there is no longer any placed‑in‑service deadline for bonus depreciation eligibility.
Previously, TCJA required most qualified property to be placed in service before January 1, 2027 (or January 1, 2028 for LPP property and aircraft). Under the new rules, property placed in service in later years may still qualify as long as it is acquired after January 19, 2025.
This greatly simplifies long‑term planning for multi‑year construction projects.
B. Long‑Production‑Period (LPP) and Aircraft Rules Removed
OBBBA eliminates:
All assets now qualify under a single, uniform acquisition‑date standard.
C. New Eligible Property Categories
OBBBA expands eligible property to include:
These additions broaden the scope of property eligible for accelerated cost recovery.
The 10% physical work safe harbor remains the most important factor in determining whether a project falls under TCJA’s phasedown rates (e.g., 40% for 2025) or OBBBA’s permanent 100% bonus.
The Rule
A project is treated as having begun construction when the taxpayer has paid or incurred more than 10% of total project costs — excluding land and preliminary activities.
Thus, amounts paid or incurred before January 19, 2025, may indicate pre‑cutoff acquisition.
Practical Application
This rule did not change — only the date did.
Within this updated framework, two major planning opportunities emerge:
A. Component Election for 100% Bonus on Real Estate Components
Allows taxpayers to secure 100% bonus depreciation on qualifying §1245 components even when the building itself falls under the prior 40% rules.
B. Election to Use 40% Bonus Instead of 100% (2025 Only)
Provides taxpayers with a one‑year opportunity to manage taxable income by electing the lower bonus rate.
Together, these elections give taxpayers meaningful control over the amount of bonus depreciation recognized in a given year.
The component election under §1.168(k)-2(c) remains one of the most powerful tools for securing bonus eligibility for §1245 property. The TCJA 2019 final regulations include an example (“Example 4”) that mirrors the fact pattern most commonly encountered in practice — and it remains directly relevant under today’s rules.
The election allows taxpayers to:
This is especially valuable for:
Because Notice 2026‑11 retains the structure of §1.168(k)-2(c), the component election is just as powerful — if not more — under OBBBA.
The following example remains exactly as written in the 2019 final regulations and continues to apply under Notice 2026‑11.
Facts (Simplified)
Step 1 — Identify the Larger Self Constructed Property
Under the regulations, §1245 assets are treated as a separate self-constructed property group because:
Thus, the “larger” property for the election is the $3M of §1245 components, not the $10M building project.
Step 2 — Apply the 10% Test to the Components
Test: Did BG incur >10% of the §1245 property cost before Sept. 28, 2017?
Since $500,000 > $300,000, construction of the §1245 property began before the cutoff.
Step 3 — Determine Bonus Eligibility Under the Election
Because BG made the election:
Building (Nonresidential Real Property)
Example 4 demonstrates how taxpayers can salvage bonus depreciation on §1245 components even when the building itself is ineligible. This scenario is extremely common in real‑world practice, particularly for:
Cost segregation is essential for identifying and isolating these assets.
Notice 2026‑11 confirms that bonus depreciation remains grounded in the TCJA framework, with updated acquisition dates driving eligibility under OBBBA’s permanent 100% bonus rules. For projects crossing the January 19, 2025, threshold, the written binding contract rules, physical work test, and 10% safe harbor remain decisive.
Most importantly, the component election continues to offer one of the highest‑value opportunities for securing bonus depreciation on §1245 property even when the building itself is ineligible. As cost segregation professionals navigate this new environment, mastery of these transition rules will be essential for unlocking substantial tax benefits and delivering strategic value to clients.
If you have any questions or are interested in learning more, don’t hesitate to reach out today!
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
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