Treasury Issues Bonus Depreciation Guidance

The sweeping changes made by the legislation commonly known as the One, Big, Beautiful Bill Act (OBBBA) included permanent 100% first year bonus depreciation for qualified property acquired and placed in service after January 19, 2025.  The Internal Revenue Service today issued Notice 2026-11 (the Notice) announcing that the Treasury Department intends to issue proposed regulations related to the new bonus depreciation allowance, and providing interim guidance that applies before regulations are issued.

In connection with a previous extension of bonus depreciation in 2017 the Treasury Department issued regulations related to determining when property was considered “acquired” for bonus depreciation qualification purposes (the 2017 Regulations).  Under the 2017 Regulations property generally is considered “acquired” as follows:

• Property acquired pursuant to a binding written contract is considered acquired on the later of (i) the date the contract was entered into, (ii) the date the contract became enforceable under state law, (iii) the date all cancellation periods end (if the contract has one or more cancellation periods under which the contract could be cancelled without penalty), or (iv) the date all contingencies are satisfied.
• Property that is not acquired pursuant to a binding written contract is considered acquired on the date the taxpayer pays or incurs more than 10% of the total cost of the property.
• Self-constructed property (including property that is manufactured, constructed, or produced for the taxpayer by another person under a binding written contract that is entered into before the manufacture, construction, or production) is considered acquired on the date physical work of a significant nature begins or, at the election of the taxpayer, when 10% of the total cost of the property is paid or incurred.

The 2017 Regulations also contained special rules allowing a taxpayer to elect to treat components of self-constructed property separately from the larger project for bonus depreciation qualification purposes.

The Notice provides interim guidance under which a taxpayer can apply rules consistent with the 2017 Regulations for purposes of the OBBBA extension of bonus depreciation, generally substituting “January 19, 2025” for “September 27, 2017” each place it appears in the 2017 Regulations, and “January 20, 2025” for “September 28, 2025” each place it appears in the 2017 Regulations.

The Notice provides that taxpayers may rely on the interim guidance with respect to eligible property placed in service in a taxable year beginning before the date proposed regulations are issued.

The interim guidance provides welcome certainty to developers and investors seeking to confirm that property qualifies for the new bonus depreciation allowance.  The 2017 Regulations are complex and contain some ambiguity, but the interim guidance will at least allow developers and investors to have comfort that they can rely on similar principles for purposes of determining whether qualified property will be considered acquired after January 19, 2025 so that it may qualify for the new OBBBA bonus depreciation regime.  

Please contact us if you have any questions about the guidance regarding the additional first year bonus depreciation.