Rev. Proc. 2011-26

Where this comes from

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 created 100% bonus depreciation for the first time. But it also gave taxpayers choices. You could take 100%, elect to take 50% instead, or skip bonus entirely for a class of property. The law itself said the IRS would provide the procedure for making those choices.

Revenue Procedure 2011-26, published in April 2011, delivered that procedure. It covered the specific window created by the 2010 law: qualified property acquired after September 8, 2010 and placed in service before January 1, 2012.

What it established

The procedure set out three election options for property in the 2010-2011 window. First, a taxpayer could take no action and claim 100% bonus on all qualifying property. Second, a taxpayer could elect to take 50% instead of 100% for all property in a depreciable class. Third, a taxpayer could elect out of bonus entirely for a class.

Elections had to be made by the due date of the return (including extensions) for the year the property was placed in service. They were generally revocable only with IRS consent. The procedure also addressed how to handle property that had been placed in service in the brief window between the old 50% rules and the new 100% rules.

The Section 280F safe harbor allowed taxpayers to apply the new 100% rules to certain listed property (primarily vehicles) without triggering the luxury auto limitations that would otherwise reduce the first-year deduction.

How it shows up in a study

When a cost segregation study covers property placed in service from September 9, 2010 through December 31, 2011, this procedure governs how to lock in the bonus. The study identifies the 5-year, 7-year, and 15-year components. Rev. Proc. 2011-26 then tells you which form elections go on and when they must be filed.

The 50%-instead-of-100% election also matters. Some taxpayers prefer a smaller first-year deduction to avoid creating a net operating loss or to spread the benefit over two years. The procedure gives the mechanics for making that choice.

What it does not mean

This procedure applies only to the 2010-2011 window. For property placed in service after 2016 under the Tax Cuts and Jobs Act, the current guidance is Revenue Procedure 2020-50.

The procedure also governs elections, not the underlying qualification rules. Whether a component qualifies as short-life property still depends on the Section 1245 rules, the MACRS asset class tables, and the case law. Rev. Proc. 2011-26 only handles the mechanics of claiming or adjusting the bonus once you know what qualifies.