Regulatory Updates: OBBBA, IRS Notices, Tax Court

Ten primary-source regulatory updates. OBBBA implementation, IRS Notices issued under OBBBA, Section 168(n) Qualified Production Property, state conformity tracker, and Tax Court precedent shaping current cost segregation practice.

• OBBBA Complete 2025-2026 Update: Every Tax Change for Real Estate

  Public Law 119-21 (OBBBA) was signed July 4, 2025 and effective January 19, 2025 for acquisition cutoffs. Every change relevant to real estate investors: 100% bonus, $2.5M Section 179, Section 168(n) QPP, Opportunity Zones extension.

• IRS Notice 2026-11: Interim Guidance on Amended Section 168(k)

  IRS Notice 2026-11 was issued January 14, 2026 and provides interim guidance on the additional first-year depreciation deduction under Section 168(k) as amended by OBBBA. Binding contract definition and election mechanics.

• Section 168(n) Qualified Production Property Under OBBBA

  OBBBA added Section 168(n) creating a new bonus depreciation pathway for nonresidential real property used in qualified production. Construction begins after January 19, 2025. Placed in service before 2031.

• IRS Notice 2026-16: QPP Implementation Guidance

  IRS Notice 2026-16 provides implementation guidance for Section 168(n) Qualified Production Property. Construction-begin definition, qualified production use, placed-in-service rules.

• Permanent 100% Bonus: Long-Term Real Estate Planning Implications

  OBBBA made 100% bonus depreciation permanent. Long-term real estate planning implications: acquisition timing, hold strategy, recapture exposure, exit planning.

• State Conformity Tracker: OBBBA Bonus Depreciation by State

  Current state-by-state conformity status for OBBBA bonus depreciation. Rolling conformity, static conformity, decoupled-partial, decoupled-full, and states with no income tax.

• IRS Pub 5653 February 2025 Update: What Changed

  The February 2025 edition of the IRS Cost Segregation Audit Techniques Guide incorporates OBBBA changes and explicitly addresses virtual site inspections.

• Permanent Opportunity Zones Under OBBBA

  OBBBA extended Opportunity Zone deferral through 2033 and made the program permanent. Long-term planning implications for cost-segregated QOZB real estate.

• Section 179 Expansion Under OBBBA: New $2.5M Cap

  OBBBA raised the Section 179 dollar limitation to $2.5 million with a $4 million phaseout. Implementation details, eligible property, and interaction with bonus depreciation.

• AmeriSouth v. Commissioner: How the Case Shaped Cost Seg

  AmeriSouth XXXII Ltd v. Commissioner (T.C. Memo 2012-67) sharpened the line between Section 1245 personal property and Section 1250 real property for cost segregation studies.

Frequently asked questions

What is OBBBA and how did it change cost segregation?

The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) restored permanent 100% bonus depreciation under IRC Section 168(k) for property acquired and placed in service after January 19, 2025. Pre-OBBBA phase-down was 40% in 2025, 20% in 2026, 0% thereafter. Property acquired under a binding contract before January 20, 2025 stays on the phase-down schedule.

What does IRS Notice 2026-11 clarify?

IRS Notice 2026-11 (January 14, 2026) provides interim guidance on the amended Section 168(k) after OBBBA. It defines the acquisition date for the January 19, 2025 cliff, addresses component acquired-property rules, and gives a written binding contract safe harbor for property under construction as of the OBBBA enactment date. Taxpayers may rely on the notice pending final regulations.

What is Section 168(n) Qualified Production Property?

Section 168(n), added by OBBBA, creates a new 100% first-year deduction for Qualified Production Property placed in service after January 19, 2025. QPP is nonresidential real property used as an integral part of a qualified production activity (manufacturing, refining, agricultural production). It bypasses the 39-year schedule entirely. IRS Notice 2026-16 addresses the qualified production activity definition.

Which states decouple from OBBBA bonus depreciation?

As of 2026, 15 states fully decouple from Section 168(k): CA, FL, HI, KY, MD, MA, MN, MS, NH, NJ, NC, OH, PA, TN, and WI. Taxpayers add back federal bonus and depreciate on state rules. Nine additional states use an electable or partial conformity mechanic. Rolling-conformity states (about half) automatically follow federal. The state conformity tracker at /regulatory/state-conformity/ lists all 50.

Does the AmeriSouth Tax Court decision still control cost seg practice?

Yes. AmeriSouth XXXII v. Commissioner, T.C. Memo 2012-67 remains the controlling authority on component-vs-structural classification. The court applied the six-factor Whiteco test for permanence. Studies that document each reclassified component against the Whiteco factors survive audit at higher rates. IRS Pub 5653 Chapter 4 incorporates the AmeriSouth analysis into the 13 Principal Elements standard.

How often does the IRS update Publication 5653?

IRS Publication 5653 (Cost Segregation Audit Techniques Guide) was last updated February 2025. Prior updates occurred in 2004, 2017, and 2022. The February 2025 revision adds guidance on QIP under Section 168(e)(6), addresses partial asset disposition timing, and revises the six methodologies discussion in Chapter 3 to align with post-TCJA practice. OBBBA-specific updates are expected in the next revision.

What is the current IRS position on 15-year land improvements?

Land improvements (fencing, paving, landscaping, exterior lighting, drainage) are 15-year property under Section 168(e)(3)(E)(ii) and Rev. Proc. 87-56 asset class 00.3. They qualify for 100% bonus depreciation under OBBBA. IRS Notice 2020-25 clarifies the treatment of QIP as 15-year property. Cost seg studies routinely allocate 5% to 15% of basis to 15-year land improvements per Pub 5653 Chapter 6.