By: Nick Richards, Esq. and Alexis Whitley, Esq.
Businesses investing in capital assets should pay close attention: the IRS announced forthcoming regulations on bonus depreciation for capital assets under Section 168(k), with interim guidance issued in Notice 2026-11. These changes significantly impact immediate expensing strategies, elections, and new categories of qualified property, making them critical for tax planning in 2026 and beyond.
Prior to the 2017 Tax Cuts and Jobs Act (TCJA), capital assets could only be deducted according to their useful life, which could be as long as 50 years, depending on the type of asset. In 2017, the rules were changed to allow 100% deduction of capital asset costs in the year paid and incurred. That rule was set to expire at the end of 2026, but it was made permanent by Section 70301 of the One Big Beautiful Bill Act (OBBBA).
Key Elections for Taxpayers
The new guidance outlines several paths for businesses to tailor their depreciation:
- The Transition Choice: For the first tax year ending after Jan. 19, 2025, taxpayers can elect a 40% (or 60% for certain aircraft) deduction instead of the full 100% if it better suits their tax bracket strategy.
- Component Election: If you are constructing a large property, you can now “elect” to treat specific eligible components as separate assets. This allows you to claim 100% bonus depreciation on parts of a project even if the broader construction timeline might otherwise complicate eligibility.
- The “Opt-Out”: As always, you may elect not to claim bonus depreciation for any specific class of property if you prefer traditional depreciation schedules.
New Category
Sound Recordings. In a major win for the entertainment industry, the OBBBA expands qualified property to include sound recording productions.
- Timing: A recording is treated as “acquired” when principal recording begins and “placed in service” when it is released or broadcast.
- Flexibility: Producers can elect out of bonus depreciation on a production-by-production basis, providing significant granular control over annual taxable income.
Reliance and Next Steps
While final regulations are still forthcoming, the IRS has stated that taxpayers may rely on the interim guidance in Notice 2026-11 immediately. With the extension, companies should reconsider their capital expenditure forecasts and strategy with an eye toward taking advantage of the new rules. Be sure to subscribe to our blog for more insights on evolving IRS regulations. For guidance on how the IRS’s bonus depreciation changes could impact your capital expenditure strategy, feel free to contact Nick Richards at [email protected].
