On January 14, 2026, the IRS issued Notice 2026-11, providing guidance on eligibility of 100% bonus depreciation under the One Big Beautiful Bill Act (OBBBA). While the OBBBA’s reinstatement of this provision was a victory for taxpayers, this recent guidance proves eligibility for full expensing in 2025 and even 2026 is subject to critical timing requirements that go beyond the placed-in-service date of the asset in question.
As real estate entities finalize cost segregation studies for the 2025 tax year and accelerate planning for 2026, the critical technical issue reemerging — that many in the industry will have to address for its potential material impact on bonus depreciation outcomes — is the written binding contract rule.
Under the OBBBA, 100% bonus depreciation was permanently reinstated for qualified five, seven and 15-year property, restoring the treatment originally enacted under the Tax Cuts and Jobs Act (TCJA). Full expensing under Section 168(k) applies to assets acquired and placed in service after January 19, 2025. For assets acquired prior to this date, the pre-OBBBA bonus depreciation (40% for 2025 and 20% for 2026) applies.
Notice 2026-11 retains existing Treasury Regulations Sec. 1.168(k), specifically including how to determine acquisition and placed-in-service dates, while substituting previous dates from prior legislation with relevant dates from the OBBBA.
Bonus depreciation eligibility applies to property acquired after January 19, 2025. However, the acquisition date for assets subject to a written binding contract is determined based on the contract itself, not when the taxpayer takes possession of the property.
Based on Treasury Regulations, the acquisition date of property involving a written binding contract is the latter of the date on which:
The regulations further state a contract is binding only if:
Any contractual provision limiting damages to at least 5% of the contract price will not be treated as limiting damages to a specified amount.
Self-constructed property is property constructed or manufactured by the taxpayer, or by another person for the taxpayer. The acquisition of self-constructed property, for purposes of bonus depreciation, is based on either the date when:
Note physical work does not include preliminary activities such as planning, designing, financing, exploring or researching.
The regulations also provide a safe harbor, which allows taxpayers to determine that physical work of a significant nature “begins” when the taxpayer incurs (accrual basis taxpayers) or pays (cash basis taxpayers) more than 10% of the total cost of the property, excluding the cost of land and preliminary activities (planning, designing, securing financing, etc.).
For the purposes of the OBBBA, this date is also based on January 19, 2025, meaning if significant (10% threshold) work had begun prior to that date but the project was placed in service after January 2025, the project is still likely subject to the 40% bonus depreciation rules and is ineligible for the full 100% deduction.
Sec. 1.168(k)-2(c)(6) permits a component election, which can help taxpayers affected by acquisition dates. Assuming all other requirements are met, a smaller (or multiple various) component of a project that has an acquisition date or begins manufacture, construction or production specific to that component after January 19, 2025, can qualify for 100% bonus depreciation — even if the project does not qualify based on the dates the project began. Eligible components, for this purpose, are any assets that would otherwise qualify for bonus depreciation treatment under Sec. 168(k)(2) and 1.168(k)-2(b), using January 2025 dates in place of the September 2017 dates.
For example, assume the following facts:
The project, in this instance, does not qualify for 100% bonus depreciation. However, after completing the foundational and structural work in February 2025:
These separate purchases would be subject to the 100% bonus depreciation despite the project beginning work prior to January 19, 2025.
It is important to note the component election is an election you must make on your timely filed (including extension) tax return. Without the election, it is presumed the entire project is subject to the same acquisition date, which would disallow 100% bonus depreciation of the components. You must attach a statement to the tax return regarding this election and which components fall under it.
Projects subject to binding contracts or self-constructed property that began significant physical work prior to January 19, 2025, may be ineligible for 100% bonus depreciation, even if placed in service after January 19, 2025. This creates a disconnect between placement-in-service timing and bonus depreciation eligibility, requiring a detailed review of all contracts and construction timelines.
If you are planning for large bonus depreciation deductions that might fall into this trap, work with your tax advisers to determine if your contracts were binding, if they fall under the 10% threshold for construction projects or if they can benefit from the component election.
Contact David Charles, Samantha Kite or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.