IRS Notice 2026-11 Explained: What STR Investors Need to Know

If you own a short-term rental or are planning to buy one, IRS Notice 2026-11 is among the most significant pieces of guidance issued in years. It confirms, clarifies, and in some areas corrects how 100% bonus depreciation — restored under the One Big Beautiful Bill Act (OBBBA) signed on January 19, 2025 — applies to properties like yours.

This is not abstract tax policy. For an STR investor who purchased a property in 2025 or 2026, Notice 2026-11 directly determines whether you can deduct 100% of your bonus-eligible assets in the year you placed the property in service, how that works if the property was undergoing renovation when you bought it, and whether the passive activity exception that makes all of this matter is still intact.

Let's go through what the notice actually says, what it means in plain language, and what you need to do before you file.

Key Definitions

What IRS Notice 2026-11 Actually Says

1. The 100% bonus depreciation rate is confirmed for qualifying property placed in service on or after January 19, 2025

The OBBBA's restoration of 100% bonus depreciation created an immediate question: does the restored rate apply retroactively to all of 2025, or only from the bill's signing date forward? Notice 2026-11 answers this definitively. The 100% rate applies to qualifying property placed in service on or after January 19, 2025 — the date of enactment. Property placed in service before that date is subject to the rates under prior law (60% for 2024, 40% for the portion of 2025 before January 19).

For most STR investors, this means that if you closed on and placed a property in service at any point from January 19, 2025 onward, you are eligible for the full 100% rate on your bonus-eligible assets. If you closed in early January 2025 — before the 19th — you are at the 40% rate that was in effect under the prior phasedown schedule for 2025.

2. Both new and used qualifying property are eligible at 100%

One of the most investor-friendly aspects of Section 168(k) has always been that it applies to used property as well as new property — as long as the property has not previously been used by the taxpayer claiming the deduction. Notice 2026-11 explicitly confirms that this provision carries forward under the OBBBA restoration. You do not need to buy a brand-new short-term rental to benefit from 100% bonus depreciation. Purchasing an existing cabin, beach house, or vacation property qualifies, provided you have not owned or used that specific property before.

This is significant for STR investors because the vast majority of investment properties in popular vacation markets are existing properties, not new construction. The used-property eligibility is what makes this strategy accessible to the typical investor.

3. The "placed in service" definition is clarified for renovation properties

This is one of the most practically important clarifications in Notice 2026-11, and it resolves a gray area that had caused uncertainty for buyers who acquired properties requiring significant renovation before their first guest booking.

The notice clarifies that a property is considered "placed in service" for bonus depreciation purposes when it is in a condition of readiness and availability for its intended use as a short-term rental — meaning it must actually be available for guest rental, not merely purchased. A property that is closed on in October 2025 but requires three months of renovation and does not accept its first guest until January 2026 is placed in service in 2026, not 2025.

This matters for two reasons. First, it means you cannot claim bonus depreciation on a property in the tax year of purchase if the property was not actually rentable during that year. Second, it means the clock for "placed in service" runs from when the property is ready for guests — which can help investors who are managing renovation timelines and want to optimize which tax year the deduction falls into.

4. The 7-day average stay rule for the passive activity exception is reaffirmed — and unchanged

Notice 2026-11 is explicit on this point: the passive activity exception rules for short-term rentals under IRC Section 469 are not changed by the OBBBA or by this notice. The 7-day average rental period requirement and the material participation requirement both remain in full effect.

To use bonus depreciation losses from an STR to offset W-2 income or other ordinary income — which is the whole point of this strategy for most investors — you still need to meet both conditions:

1. The average rental period for the property must be 7 days or fewer.
2. You must materially participate in the property's operation (typically through the 500-hour test or being the sole operator of the activity).

The notice does not relax, modify, or create exceptions to either of these requirements. Investors who were hoping the OBBBA might loosen the material participation rules will need to look elsewhere — Notice 2026-11 expressly closes that door.

What It Means for STR Investors: Before and After

What You Need to Do

Notice 2026-11 is clarifying guidance, not new legislation — it doesn't create new obligations, but it does resolve questions that may have been left open in your tax planning. Here's what STR investors should do in response.

Confirm your "placed in service" date is documented correctly

Given the notice's clarification on renovation properties, you need to be confident that the "placed in service" date on your tax return reflects when the property was first available for guest rental — not when you closed or when you started renovations. Documentation should include the first booking confirmation or listing activation date, occupancy permit if applicable, and any records showing the property was in rentable condition.

If your CPA used the closing date as the placed-in-service date for a property that was not rentable at closing, you may need to amend your return. This is a critical compliance point.

Verify you have a qualified cost segregation study on file

Notice 2026-11 does not change the documentation requirements for claiming bonus depreciation. You still need a formal, engineer-prepared cost segregation study to identify which components of your property are eligible for 5-year and 15-year accelerated depreciation — and therefore for 100% bonus depreciation. Without that study, your entire property depreciates on the 27.5-year residential schedule and no bonus depreciation is available.

If you placed a property in service in 2025 or 2026 and have not yet commissioned a cost segregation study, do so immediately — before you file the return for the year of placement. Studies can generally be completed within four to six weeks.

Confirm your material participation documentation

Since the notice explicitly reaffirms the material participation requirement, make sure you have contemporaneous documentation of your time spent managing the STR during the tax year. Time logs, calendar records, platform management histories, and contractor communications all support a material participation position. The IRS has intensified scrutiny of STR loss deductions, and documentation is your first line of defense.

Review properties purchased before January 19, 2025

If you placed a property in service before January 19, 2025 and claimed 100% bonus depreciation — rather than the 60% or 40% rate that applied under prior law at that time — you have a potential error on your return. Consult your CPA immediately about whether an amendment is appropriate. The notice is clear that the 100% rate does not apply retroactively to pre-enactment placements.

What Notice 2026-11 Does NOT Change

Equally important to understanding what the notice clarifies is understanding what it leaves unchanged. There has been some speculation in online investor communities about provisions that the notice might have modified. Here's what it did not touch:

The passive activity rules

As stated above: the 7-day average stay requirement and the material participation requirement are intact and unchanged. No amount of reading Notice 2026-11 will support a position that these requirements no longer apply. If someone tells you otherwise, get a second opinion from a qualified CPA.

The requirement for a cost segregation study

Nothing in Notice 2026-11 creates a shortcut to claiming bonus depreciation without a cost segregation study. The study is required to identify bonus-eligible assets. The notice does not modify this requirement.

The at-risk rules

Section 465 at-risk rules, which limit loss deductions to the amount you have economically at risk in an activity, are unchanged. Even with a 100% bonus depreciation deduction, your ability to use that loss is constrained by your at-risk basis. Most investors who hold properties with conventional financing are fully at risk, but investors using non-recourse debt structures should confirm their at-risk position with their CPA.

State conformity

IRS Notice 2026-11 is federal guidance. Individual states have their own conformity rules determining whether they follow the federal bonus depreciation treatment under the OBBBA. Many states do not conform to 100% federal bonus depreciation and have their own phasedown schedules or caps. Your state tax treatment may differ significantly from your federal treatment. Confirm your state's position with a CPA familiar with your state's tax code.

The qualification requirement for the property itself

The bonus-eligible components of an STR are the personal property (furniture, appliances, fixtures with a 5-year MACRS life) and land improvements (outdoor features, paving, landscaping with a 15-year life). The structural shell — the building itself — still depreciates over 39 years for residential rental property classified as nonresidential, or 27.5 years for residential rental. No provision of the OBBBA or Notice 2026-11 changes the MACRS recovery periods for these asset classes.

The Bigger Picture: Why This Notice Matters Now

Notice 2026-11 lands at a moment when STR investors are actively deploying capital under the assumption that 100% bonus depreciation is available. The notice converts that assumption into confirmed guidance. That's meaningful: it removes the ambiguity that had caused some CPAs to be conservative about advising clients on OBBBA-era bonus depreciation, and it gives both investors and their advisors a clear authoritative basis for their filing positions.

The renovation clarification in particular will affect a significant number of investors who purchased distressed or value-add STR properties in 2025 and are now preparing their first returns on those assets. Getting the placed-in-service date right is not a minor administrative detail — it determines which tax year the deduction falls into, which can have material consequences for tax planning.

For investors who are still evaluating properties and haven't yet purchased, the notice reinforces that the 100% rate is real, available, and legally confirmed for new acquisitions. The screening question — how much of this property's purchase price is bonus-eligible — is more answerable than ever, and the answer has direct cash flow implications from day one of ownership.

To understand how bonus depreciation works in the context of an STR purchase, see our guide: What Is Bonus Depreciation for Short-Term Rentals? If you want to understand how to use these rules before you close on your next property, How to Use Section 168(k) Before Closing walks through the pre-purchase checklist step by step.

Frequently Asked Questions

Summary: What STR Investors Need to Take Away

IRS Notice 2026-11 is good news for STR investors. It confirms the 100% bonus depreciation rate is real, it clarifies the renovation timing question that had created uncertainty, and it gives everyone — investors, CPAs, and advisors — a clear authoritative basis for their filing positions.

What it does not do is open new doors that weren't already open. The passive activity rules are unchanged. The cost segregation study requirement is unchanged. The at-risk rules are unchanged. State conformity still varies. None of the structural requirements for this strategy have been loosened.

The investors who benefit most from Notice 2026-11 are those who are already doing this correctly: buying STR properties with strong cost segregation profiles, commissioning formal studies before filing, meeting the material participation standard, and using tools like DepreciMax to screen properties before they buy. The notice confirms their approach is on solid legal ground.

If you're still evaluating properties, run a DepreciMax report on any address to see its projected bonus depreciation potential before you make an offer. If you want to understand the full tax strategy behind short-term rental investing, read our explainer on the STR tax loophole and how investors use it to generate first-year paper losses that offset ordinary income.