In Notice 2026-11 (the Notice), the IRS has issued interim guidance on the additional first-year depreciation (i.e., bonus depreciation) deduction under IRC Section 168(k), as amended by the One Big Beautiful Bill Act (OBBBA). The IRS intends to issue proposed regulations that will be consistent with the guidance in the Notice.

Background

Before the enactment of the OBBBA, IRC Section 168(k) allowed taxpayers to claim bonus depreciation in the year in which qualified property was placed in service through 2026 (with an additional year to place the property in service for qualified property with a longer production period, as well as certain aircraft). Taxpayers could claim 100% bonus depreciation for qualified property acquired after September 27, 2017, and placed in service before January 1, 2023 (January 1, 2024, for certain qualified property with a longer production period, as well as certain aircraft), and for specified plants planted or grafted after September 27, 2017, and before January 1, 2023, for which an IRC section 168(k)(5) election was made. Bonus depreciation decreased by 20 percentage points annually beginning with qualified property acquired after September 27, 2017, and placed in service after December 31, 2022 (December 31, 2023, for certain property having longer production periods or certain aircraft), and specified plants planted or grafted after December 31, 2022.

The OBBBA permanently extended bonus depreciation and allows taxpayers to claim 100% bonus depreciation for qualified property acquired after January 19, 2025, as well as specified plants planted or grafted on or after that date (to the extent an election under IRC Section 168(k)(5) is made). In addition, the OBBBA modified IRC Section 168(k)(10) to give taxpayers the option to elect to claim 40% bonus depreciation (or 60% for longer production period property or certain aircraft) in lieu of 100% bonus depreciation for qualified property placed in service (or specified plants planted or grafted) during the first tax year ending after January 19, 2025.

As modified by the OBBBA, qualified property is defined as tangible property with a recovery period of 20 years or less under the modified accelerated cost recovery system, certain computer software, water utility property, qualified film and television productions, qualified theatrical productions and qualified sound recording productions. Certain trees, vines and fruit-bearing plants also are eligible for bonus depreciation when planted or grafted.

Property is generally eligible for bonus depreciation if the taxpayer has not used the property previously (i.e., it is the taxpayer's first use of the property), provided the taxpayer does not acquire the "used" property from a related party or in a carryover basis transaction.

IRC Section 168(k)(7) (which the OBBBA did not amend) continues to allow taxpayers to elect not to deduct additional first-year depreciation for any class of property (a term defined in Treas. Reg. Section 1.168(k)-2(f)(1)(ii)) that is qualified property placed in service during the tax year.

Notice 2026-11

At a macro level, Notice 2026-11 allows taxpayers to apply rules consistent with the rules in Treas. Reg. Sections 1.168(k)-2 and 1.1502-68, but modified to reflect the difference in effective dates between the TCJA and the OBBBA. For example, property must be acquired after September 17, 2017, under the TCJA, whereas property must be acquired after January 19, 2025, under the OBBBA. Specific modifications are detailed immediately below. For more information on Treas. Reg. Sections 1.168(k)-2 and 1.1502-68, see Tax Alert 2020-2330.

Depreciable property eligibility for bonus depreciation

Qualified property acquired after January 19, 2025, is eligible for 100% bonus depreciation. To determine whether depreciable property is qualified property acquired after January 19, 2025, taxpayers must apply the rules in Treas. Reg. Sections 1.168(k)-2 and 1.1502-68 by substituting "January 19, 2025" for "September 27, 2017" each place it appears and substituting "January 20, 2025" for "September 28, 2017" each place it appears.

Treas. Reg. Section 1.168(k)-2(d) does not apply in determining whether long production period property is qualified property because the OBBBA removed the requirement to acquire certain long production period property before January 1, 2027.

For components of larger self-constructed property, Notice 2026-11 allows a taxpayer to elect, under Treas. Reg. Section 1.168(k)-2(c), to treat an eligible component of eligible larger self-constructed property as eligible for bonus depreciation by substituting "January 19, 2025" for "September 27, 2017" and "January 20, 2025" for "September 28, 2017." A taxpayer makes the component election in Section 3.05(1) of the Notice by following rules and procedures consistent with those described in Treas. Reg. Section 1.168(k)-2(c)(6).

Elections under IRC Section 168(k)(5) and (10)

Notice 2026-11 allows a taxpayer to elect under IRC Section 168(k)(5) to claim 100% bonus depreciation for specified plants that are planted, or grafted to a plant that was previously planted, after January 19, 2025, by following the provisions of Treas. Reg. Section 1.168(k)-2(f)(2).

To make an election under IRC Section 168(k)(10) to claim 40% bonus depreciation (or 60% for certain property having longer production periods or certain aircraft) for qualified property placed in service during the first tax year ending after January 19, 2025, instead of 100% bonus depreciation, taxpayers must follow the provisions in Treas. Reg. Section 1.168(k)-2(f)(3) but substitute:

• January 19, 2025 for September 27, 2017
• January 20, 2025 for September 28, 2017
• 40% (60% for qualified property described in IRC Section 168(k)(2)(B) or (C)) for 50%
• "Applicable Form 4562, Depreciation and Amortization," for "2017 Form 4562, Depreciation and Amortization"

To effectuate an election under either IRC Section 168(k)(5) and (10), a taxpayer must attach a statement to the timely filed federal tax return (including extensions). Additionally, a component election or an election out of bonus depreciation would require a statement to be attached to a timely filed federal tax return (including extensions).

Election under Treas. Reg. Section 1.1502-68(c)(4)

Under Treas. Reg. Section 1.1502-68(c)(1), certain transactions between members of the same consolidated group are eligible for bonus depreciation under IRC Section 168(k) when the transferee member deconsolidates in a related transaction (see Tax Alert 2017-2131). As under IRC Section 168(k)(5) and (k)(10), Treas. Reg. Section 1.1502-68(c)(4) allows the transferee corporation to elect not to claim bonus depreciation under such circumstances. Sections 3.02 and 7 of Notice 2026-11 affirm the availability of this election under the OBBBA, and note that the former consolidated group member (i.e., the transferee) makes this election by attaching a statement to its timely filed Federal income tax return (including extensions) for the tax year that begins after the date on which it leaves the consolidated group.

Qualified sound recording productions

Notice 2026-11 provides guidance on the extent to which sound recording productions are eligible for bonus depreciation under IRC Section 168(k), as amended by the OBBBA.

A qualified sound recording production beginning in a tax year ending after July 4, 2025, and acquired after January 19, 2025, is qualified property eligible for bonus depreciation under IRC Section 168(k), as amended by the OBBBA. A qualified sound recording production is a sound recording production for which a deduction would have been allowable under IRC Section 181, determined without regard to the effective date of IRC Section 181 and the cost limitation rules contained therein. A qualified sound recording means a sound recording as defined in section 101 of title 17 that is produced and recorded in the United States. Note, IRC Section 181 expired on December 31, 2025.

Qualified sound recording productions acquired before January 20, 2025, and placed in service in a tax year ending after July 4, 2025, are eligible for 40% bonus depreciation. However, qualified sound recordings acquired after January 20, 2025, and placed in service in a tax year ending after July 4, 2025, are eligible for 100% bonus depreciation.

A qualified sound recording production is treated as acquired on the date the principal recording begins. Under IRC Section 168(k)(2)(H)(iii), the qualified sound recording production is considered to be placed in service on the date that the production is initially released or broadcasted.

Notice 2026-11 allows taxpayers to elect under IRC Section 168(k)(7) not to deduct bonus depreciation for a qualified sound recording production, using rules and procedures consistent with those in Treas. Reg. Section 1.168(k)-2(f)(1), with the definition of class of property expanded to include each separate production.

Reliance

Taxpayers may rely on the interim guidance for property placed in service in a tax year beginning before the forthcoming proposed regulations are published in the Federal Register, provided they follow the guidance in Notice 2026-11 in its entirety for all eligible property, beginning with the first tax year for which they rely on the Notice.

Implications

Notice 2026-11 is welcome guidance for taxpayers and practitioners who have been seeking rules on how to apply the OBBBA bonus depreciation provisions given that Treas. Reg. Sections 1.168(k)-2 and 1.1502-68 only addressed bonus depreciation under the TCJA. The guidance is consistent with what many taxpayers and practitioners had been anticipating; by extending Treas. Reg. Sections 1.168(k)-2 and 1.1502-68 to the OBBBA bonus depreciation provisions, the guidance provides a set of rules that taxpayers and practitioners have already seen in practice for the past several years. Additionally, the extension of Treas. Reg. Section 1.168(k)-2 to the OBBBA bonus depreciation provisions means the IRS has agreed to the acquisition date determinations set forth in that regulation, including:

• Treating property that is yet to be constructed upon entering into a written binding contract as self-constructed property (for which the acquisition date is the date construction begins or, under a safe harbor, the date the taxpayer pays or incurs more than 10% of the costs of such property)
• Allowing component elections, which may allow a given taxpayer to take 100% bonus depreciation under the OBBBA on portions of larger property that is not eligible for 100% bonus depreciation under the OBBBA, as its construction began before January 20, 2025.