IRS Notice 2026-11: What the New 100% Bonus Depreciation Guidance Means for Rental Property Owners

Why This Notice Matters

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025. That sentence sounds simple. Applying it in practice is not.

The IRS issued Notice 2026-11 in early 2026 specifically to address the dozens of ambiguous situations rental owners and their CPAs kept running into: What counts as "acquired"? What about property acquired in late 2024 but placed in service in 2025? What about cost segregation lookback studies? What about 1031 exchange replacement property?

This guide walks through the Notice's rules in plain English, with worked examples for each common rental-property scenario. If you bought a rental in the last 18 months or plan to in the next 12, the answer to "which bonus rate applies?" is almost always determined by Notice 2026-11.

The Core Rule: Acquisition Date, Not Placed-in-Service Date

The cutoff Congress wrote into the OBBBA is January 19, 2025. Property acquired after that date qualifies for 100% bonus; property acquired on or before that date remains on the TCJA phase-down schedule (60% for 2024, 40% for 2025, 20% for 2026, 0% for 2027). The phase-down rates are based on the year placed in service, but the rate that applies is locked in at acquisition.

The Notice 2026-11 guidance boils down to: acquisition is when you had a binding, contingency-free right to take title, not when the closing papers got signed or when you moved tenants in. The sections below walk through the five scenarios the Notice addresses.

Scenario 1: Ordinary Purchase with a Binding Contract

For a standard rental property purchase, the acquisition date is the earlier of:

The date your purchase contract became binding with all contingencies satisfied, or
The closing date

A typical purchase contract has several contingencies: financing, inspection, title, appraisal. These contingencies suspend "binding" status until they're resolved. Under Notice 2026-11, the acquisition date is not the day you signed the contract — it's the day the last contingency was resolved. In most transactions, that's within a week or two of closing, so the closing date is the practical answer.

Example — Post-cutoff purchase:

Contract signed: January 10, 2025
Financing contingency removed: January 22, 2025
Closing: February 14, 2025
Acquisition date: January 22, 2025 (first date all contingencies were satisfied)
Acquisition after Jan 19 → 100% bonus applies

Example — Cross-cutoff purchase:

Contract signed: December 15, 2024
All contingencies removed by: January 8, 2025
Closing: January 30, 2025
Acquisition date: January 8, 2025 (contingencies resolved before the signing date is irrelevant — the contract was binding on the date of the last removed contingency)
Acquisition before Jan 19 → TCJA phase-down rate (40% for property placed in service in 2025)

The signed purchase agreement alone does not fix the acquisition date. Buyers who signed in December 2024 but closed in February 2025 often assume they're post-cutoff; they're not. The contingency-resolution date is what matters.

Scenario 2: Self-Constructed Improvements

If you build new improvements to an existing rental — a new roof, an HVAC overhaul, a garage addition, a pool — the acquisition date for the improvement is the date physical construction begins under a binding contract. Planning, architect engagement, and permit applications do not count. Notice 2026-11 specifies that "physical construction" means on-site work actually commencing.

Example:

Signed a roof-replacement contract: December 1, 2024
First shingle removed: February 3, 2025
Acquisition date: February 3, 2025
Acquisition after Jan 19 → 100% bonus applies to the new roof (which qualifies as 15-year qualified improvement property only if applied to a non-residential rental; for residential, the new roof is 27.5-year property and gets no bonus regardless)

This matters most for short-term rental owners and commercial landlords adding qualifying 15-year improvements like land improvements, exterior lighting, and parking lots. Timing the start of construction across the January 19, 2025 cutoff can be the difference between 100% first-year expensing and 40%.

Scenario 3: §1031 Like-Kind Exchange Replacement Property

This is where Notice 2026-11 gets technical, and where a lot of CPAs and investors were guessing wrong before the guidance landed.

When you use a §1031 exchange to acquire replacement property, the carryover basis from the relinquished property inherits the original acquisition date. Only the excess basis (the "boot paid" — cash or other property you put in on top of the relinquished property's basis) is treated as a new acquisition on the exchange-closing date.

Example:

2022: Bought Property A for $300,000, took $50,000 of depreciation → adjusted basis $250,000
2026: Sold Property A for $500,000, simultaneously closed on Property B for $600,000 using a qualified intermediary
Exchange closing date: March 15, 2026

Basis breakdown on Property B:

Carryover basis: $250,000 (inherits Property A's 2022 acquisition date → pre-Jan 19, 2025 → TCJA phase-down rates)
Excess basis: $100,000 cash paid in ($600,000 − $500,000) — inherits the exchange closing date → post-Jan 19 → 100% bonus on qualifying components
Plus $250,000 of additional deferred gain ($500,000 sale − $250,000 adjusted basis) that folds into carryover basis treatment

When you run a cost segregation study on Property B, the study must allocate reclassified components proportionally between the carryover and excess basis. Only the excess-basis share qualifies for 100% bonus; the carryover share is capped at the 2022 TCJA rate (which was already down to 80% — but by 2026, when you're taking the deduction, it's moot since the full phase-down has been "baked in" to the exchange basis rules).

Practical implication: In a fully-deferred 1031 exchange (no boot paid), zero of the replacement property's basis qualifies for 100% bonus. The exchange defers gain beautifully, but it also locks the depreciation schedule to the original property's acquisition date. Investors considering a 1031 vs. straight sale-and-reinvest decision should now model the bonus-depreciation trade-off explicitly.

Scenario 4: Cost Segregation Lookback Studies

This is the scenario that caught the most rental owners off-guard when Notice 2026-11 was issued.

A lookback cost segregation study is performed on a property you already own, identifying components that should have been placed on shorter depreciation schedules but were lumped into the building structure. You file Form 3115 (Change in Accounting Method) to claim the catch-up deduction in the current year — often several years of accumulated "missed" depreciation all at once.

Before Notice 2026-11, a common (wrong) assumption was: "I'm doing the study in 2026, so 2026 rules apply, so I get 100% bonus on the reclassified components." The Notice clarifies that the rate is determined by the property's original acquisition date, not by when you do the study.

Example — Pre-Jan-19-2025 acquisition:

Bought a rental in June 2023 for $450,000
In 2026, ran a cost-seg lookback study; reclassified $90,000 into 5/7/15-year components
The 2023 acquisition date → TCJA phase-down schedule → 80% bonus rate (the rate for property placed in service in 2023) applies to the reclassified components
Catch-up deduction via Form 3115 reflects 80%, not 100%, on reclassified components

Example — Post-Jan-19-2025 acquisition:

Bought a rental in August 2025 for $450,000
In 2026, ran a cost-seg lookback study; reclassified $90,000 into 5/7/15-year components
The August 2025 acquisition date → post-cutoff → 100% bonus rate applies
Catch-up deduction via Form 3115 reflects 100%

This rule is retroactively consistent with how MACRS has always worked (the rate is fixed at placed-in-service), but many preparers were assuming the OBBBA "restart" opened the door to 100% on all current-year cost-seg work. It does not.

The practical takeaway: if you own a pre-2025 property and are considering a lookback study, do the math with the actual applicable bonus rate. The study is often still worthwhile — a $90,000 reclassification at 80% bonus is $72,000 of first-year deductions, still large — but it's not as large as many investors expect.

Scenario 5: Gifts, Inheritance, and Related-Party Transactions

Notice 2026-11 also addresses edge cases:

Inherited property: The acquisition date is the date of the decedent's death (basis is stepped up under §1014). Death after January 19, 2025 → 100% bonus applies on the stepped-up basis for cost-seg reclassifiable components.
Gifted property: Carryover basis from the donor. Acquisition date is the donor's original acquisition date, not the gift date. Pre-Jan-19-2025 donor acquisition → no 100% bonus on the gifted basis.
Related-party purchase: Acquisition rules apply, but §179(d) and §168(k) anti-abuse rules prevent you from "re-starting" bonus by selling between related entities (e.g., from an individual to their own LLC). The Notice reaffirms these anti-abuse rules — a related-party sale does not create a new post-Jan-19-2025 acquisition date for bonus purposes.

See our inherited rental property guide for the full stepped-up basis mechanics.

What Notice 2026-11 Did NOT Change

Three common misconceptions the Notice explicitly rejects:

It did not extend 100% bonus to pre-Jan-19-2025 property. The statutory cutoff is what it is; the Notice only clarifies how to apply it.
It did not change the list of qualifying property. MACRS assets with 20-year or shorter recovery periods still qualify; the building structure itself (27.5-year residential, 39-year non-residential) still does not.
It did not exempt any property type from the acquisition-date rule. Residential, commercial, STR, long-term rental — all follow the same cutoff.

Planning Implications Through 2027

If You're Still Shopping

For any rental acquisition from this point forward, the acquisition date is unambiguously post-cutoff, so 100% bonus applies. The planning task is maximizing what gets reclassified through cost segregation — the bonus rate is no longer in question.

If You Bought in 2024

Your acquisition is locked at the 2024 phase-down rate (60%). Any cost-seg lookback study you run in 2026 or 2027 applies 60% to reclassified components. Still economically attractive on a large property, but don't model it at 100%.

If You Bought Between Jan 1 and Jan 19, 2025

The narrow 19-day window. Your acquisition is pre-cutoff (40% TCJA rate for 2025). Double-check the contingency-resolution dates on your closing documents — if your last contingency was actually resolved on January 20 or later, you may be post-cutoff after all. This is worth reviewing with your CPA.

If You Bought Between Jan 20, 2025 and Now

You qualify for 100% bonus on reclassified components. If you haven't run a cost segregation study yet, running one now (within the first year or two of ownership) maximizes your first-year deduction.

If You're Planning a 1031 Exchange

Notice 2026-11 meaningfully changes the 1031 planning calculus. A fully-deferred exchange locks in the original property's (often pre-cutoff) acquisition date for the entire carryover basis, which means the new property's cost-seg reclassification won't qualify for 100% bonus on most of its basis. For investors sitting on large gains, the decision between 1031-deferring the gain vs. selling-and-paying-tax-then-reinvesting now has an additional variable: post-cutoff acquisition on the full basis gets 100% bonus, which can offset a significant portion of the gain tax.

Form 3115 and Filing Mechanics

If you're claiming a catch-up cost-seg deduction via Form 3115, the Notice instructs preparers to:

File Form 3115 with the original return for the year of the accounting method change (not an amended return)
Compute the §481(a) adjustment using the acquisition-date-based bonus rate, not the current-year rate
Attach a statement to the return showing the acquisition date determination and the rate applied

For large lookback deductions ($100k+), expect elevated IRS scrutiny over the acquisition date. Keep contemporaneous documentation: contract signing date, dates of contingency removal, closing statements, financing approval letters. A clear paper trail is the difference between a clean 3115 and an IRS examination that challenges the bonus rate.

Bottom Line

Notice 2026-11 didn't change the OBBBA — it just made the OBBBA workable. The central rule: the bonus rate is set at acquisition and follows the property for the rest of its tax life, including through lookback cost-seg studies and most 1031 exchanges.

For rental owners, that means the January 19, 2025 cutoff isn't a historical footnote — it's the single most consequential date in your property's depreciation schedule. Knowing which side of it your property sits on determines whether cost segregation delivers 100 cents or 40 cents on the dollar.

Further reading: