Executive Summary

The IRS has released Notice 2026-11, providing interim guidance on the application of 100% bonus depreciation under IRC Section 168(k) as amended by the One Big Beautiful Bill Act (OBBBA). The Notice allows taxpayers to rely on existing TCJA bonus depreciation regulations, with modified effective dates, until proposed regulations are issued.

This guidance offers long-awaited clarity on eligibility, elections, acquisition dates, consolidated group rules, and treatment of sound recording productions, and largely aligns with market expectations.

Key Highlights

1. Statutory Restoration of 100% Bonus Depreciation

• • 100% bonus depreciation is now available for qualified property acquired after January 19, 2025.
  • Applies to tangible property with a 20-year or shorter MACRS recovery period, certain software, water utility property, film, television, theatrical, and sound recording productions.
  • Certain trees, vines, and fruit-bearing plants also qualify.

2. Reliance on Existing TCJA Regulations (With Date Substitutions)

• • Taxpayers may apply Treas. Reg. §§ 1.168(k)-2 and 1.1502-68, substituting:
    • January 19, 2025, for September 27, 2017
    • January 20, 2025, for September 28, 2017

January 19, 2025, reflects the statutory effective date under OBBBA, while January 20, 2025, represents the first full day after enactment, consistent with the date-substitution mechanics used in the TCJA regulations.

• • Long-production-period property rules limiting eligibility based on acquisition deadlines no longer apply.

3. Self-Constructed Property & Component Elections

• • Property subject to a written binding contract but not yet constructed is treated as self-constructed property.
  • Acquisition date is the date construction begins (or when >10% of costs are incurred under the safe harbor).
  • Taxpayers may make a component election, allowing eligible components of larger self-constructed assets to qualify for 100% bonus depreciation, even if the overall project began before January 20, 2025.

4. Optional Reduced Bonus Election (IRC §168(k)(10))

• • Taxpayers may elect:
    • 40% bonus depreciation, or
    • 60% for long-production-period property or certain aircraft,
  • Applies to property placed in service in the first tax year ending after January 19, 2025.
  • Election is made by attaching a statement to a timely filed return (including extensions).

5. Election Out of Bonus Depreciation

• • IRC §168(k)(7) continues to allow taxpayers to elect out of bonus depreciation for any class of property.
  • Election applies class-by-class and requires an attached statement to the return.

6. Consolidated Group Transactions

• • Notice confirms the continued availability of bonus depreciation in deconsolidation transactions under Treas. Reg. §1.1502-68.
  • Transferee members may elect out of bonus depreciation, with the election made on the first return filed after leaving the consolidated group.

7. Qualified Sound Recording Productions

• • Sound recording productions qualify for bonus depreciation if:
    • Acquired after January 19, 2025, and
    • The tax year ends after July 4, 2025.
  • 100% bonus depreciation applies if acquired after January 20, 2025.
  • 40% bonus depreciation applies if acquired before January 20, 2025.
  • Each sound recording production is treated as a separate class of property for election-out purposes.
  • Placement in service occurs upon initial release or broadcast.

8. Reliance Rule

• • Taxpayers may rely on Notice 2026-11 before proposed regulations are issued, provided the Notice is applied consistently to all eligible property, beginning with the first year of reliance.

Practical Implications

• Provides certainty for capital expenditure planning post-OBBBA.
• Preserves familiar TCJA-based frameworks, minimizing compliance disruption.
• Enables accelerated deductions through:
  • Component elections,
  • Strategic use of reduced bonus elections,
  • Optimized acquisition-date planning.
• Particularly impactful for manufacturing, infrastructure, media, technology, and M&A-driven asset transfers.

Conclusion

Notice 2026-11 delivers timely, pragmatic guidance that effectively bridges the gap between the OBBBA statutory changes and forthcoming regulations. By extending the well-established TCJA bonus depreciation framework, with targeted modifications, the IRS has provided taxpayers with predictability, planning flexibility, and immediate opportunities for accelerated cost recovery. Taxpayers should evaluate current and planned capital investments to determine whether 100% bonus depreciation, component elections, or reduced bonus elections yield optimal tax outcomes under the new regime.