IRS Guidance on 100% Bonus Depreciation: What Real Estate Investors Should Watch

100% bonus depreciation is permanent for qualified property acquired after January 19, 2025, under section 70301 of Public Law 119-21. The only IRS guidance so far is Notice 2026-11, issued in January 2026, which tells taxpayers to apply the 2017-era regulations with the dates swapped. Proposed regulations had not appeared in the Federal Register as of September 30, 2026. For a real estate investor the watch list has four items: the acquisition date against the binding-contract rule, the one-time 40% election, the new section 168(n) deduction for production buildings, and the states that still add the deduction back.

What the statute now says

Section 168(k)(1) now provides that the first-year depreciation deduction “shall include an allowance equal to 100 percent of the adjusted basis of the qualified property.” The phase-down schedule in the old paragraph (6) and the related paragraph (8) were repealed by section 70301(b)(1)(B). Qualified property is still property with a recovery period of 20 years or less, which is why the deduction reaches a building only through cost segregation of its 5-, 7- and 15-year components, never the 27.5- or 39-year shell. The election out in paragraph (7) remains, by class of property, and “may be revoked only with the consent of the Secretary.”

Notice 2026-11 summarises the effective date: the amendments “apply to property acquired, or specified plants planted or grafted, after January 19, 2025,” and under section 70301(c)(4) “property is not treated as acquired after the date a written binding contract is entered into for such acquisition.” Property acquired before January 20, 2025 stays on the old schedule, which the notice records as 40% for property placed in service during 2025 (60% for certain long-production-period property).

What Notice 2026-11 tells you to do

• Determine whether property is qualified, and the acquisition date, by applying Reg. section 1.168(k)-2 and the consolidated-return rules in Reg. section 1.1502-68, substituting “January 19, 2025” for “September 27, 2017” and “January 20, 2025” for “September 28, 2017” wherever they appear (section 3.03).
• The written-binding-contract, self-constructed-property and non-binding-contract rules of Reg. section 1.168(k)-2(b)(5) carry over with those substitutions.
• The section 168(k)(10) election lets a taxpayer deduct 40% (60% for long-production-period property) instead of 100% for qualified property placed in service “during the first taxable year ending after January 19, 2025.” It is made on Form 4562 following the procedure in Reg. section 1.168(k)-2(f)(3) with the dates and percentages substituted (section 4.03).
• Taxpayers may rely on the notice for property placed in service in taxable years beginning before the proposed regulations are published (section 6).

Why the acquisition date matters for a building

A contract signed on January 15, 2025 and closed in March 2025 is property acquired before January 20, 2025. Its short-life components get 40%, not 100%. A hypothetical $3,000,000 purchase with $600,000 of components carrying recovery periods of 20 years or less produces a $600,000 first-year deduction on the new rule and $240,000 on the old one, with the balance recovered over the component lives. Run your own numbers with your CPA, and pull the contract date before anyone promises the larger figure.

For property acquired in a 1031 exchange the split between exchanged basis and excess basis adds a second layer; see bonus depreciation and cost segregation on replacement property. The planned bonus depreciation in 2026 page covers what qualifies in detail.

The 40% election is a one-year decision

The election applies only to the first taxable year ending after January 19, 2025, which for a calendar-year taxpayer is 2025. It is attractive when a large first-year loss would be wasted, for example when passive-loss rules would suspend it or when income is low in the acquisition year and expected to rise. Once that return is filed the choice is gone for that year’s property.

Section 168(n): a deduction for production buildings

The act added a 100% deduction for the portion of nonresidential real property used by the taxpayer “as an integral part of a qualified production activity,” where original use begins with the taxpayer, construction begins after January 19, 2025 and before January 1, 2029, and the property is placed in service before January 1, 2031. Property used by a lessee does not count as used by a lessor. That last sentence is why an owner leasing a plant to a manufacturer does not get the deduction; the operating tenant structure decides it. Notice 2026-11 does not address section 168(n); watch for separate guidance.

State decoupling: four verified examples

Federal 100% expensing does not travel to every state return. Examples we checked on the state agencies’ own pages:

• California. The 2025 Form FTB 3885 instructions list “IRC Section 168(k) relating to the depreciation deduction for certain assets” and the “100% depreciation election for qualified production property (IRC Section 168(n))” among the items California does not conform to (source).
• New York. Form IT-398 states that for tax years beginning after December 31, 2002, New York “does not allow the federal special depreciation deduction” for section 168(k) property placed in service after May 31, 2003, with a New York depreciation computed instead (source).
• New Jersey. The Division of Taxation decoupled from federal bonus depreciation for corporation business tax from 2002 and for gross income tax from taxable years beginning on or after January 1, 2004 (source).
• Pennsylvania. The personal income tax guide states plainly: “Bonus depreciation is not allowed for PA PIT purposes” (source).

Other states have their own add-back and recovery schedules. Ask your CPA for the rule in every state where you file, not just the property’s state.

Where a bonus depreciation fund fits

Our accelerated depreciation real estate funds use cost segregation studies to identify assets that can be depreciated quickly, front-loading deductions so investors receive paper losses in year one that can be applied against qualifying income. Whether a loss offsets your income depends on the passive-activity and other limits that apply to you, which your CPA determines. The answer page on moving 1031 money into a bonus depreciation fund explains why a fund interest is not like-kind property and how the two tools are sequenced.

What to do now

1. Pull the contract date on every property acquired in 2025. The deduction depends on it, not on the closing date.
2. Decide the 40% election before filing the first return ending after January 19, 2025; it is made on Form 4562 and cannot be revisited.
3. Have the state add-backs modelled before relying on a first-year loss. A federal deduction with a California or New York add-back is two different numbers.
4. If you are selling a property with a large recapture layer and want a fund to absorb part of the gain, request a proposal with the sale date and your other income.

Sources

• 26 U.S.C. section 168 (subsections (k) and (n))
• Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction under section 168(k)
• California FTB, 2025 Instructions for Form FTB 3885
• New York Department of Taxation and Finance, Form IT-398
• New Jersey Division of Taxation, NJ Decoupled from Federal Depreciation
• Pennsylvania Department of Revenue, PA Personal Income Tax Guide: Net Income (Loss) from the Operation of a Business, Profession or Farm