Bonus Depreciation Elections: Construction Component Records
Organize component contracts, installation dates, and cost support before asking your preparer about construction-related bonus depreciation elections.
Why a construction project needs component records
Section 3.05 of Notice 2026-11 addresses an election involving certain components of larger self-constructed property. This is a fact-specific provision, not permission to treat any later invoice as automatically eligible. Have the preparer determine whether the provision applies before building an estimate around it.
Map the larger project and each candidate component
Identify the project, its contracts, and the physical components being considered. For each component, record the supplier, scope, dates, cost support, installation location, and link to the larger construction schedule. Mark owner-purchased equipment and contractor allowances so the same costs are not counted in both places.
Preserve contract changes
A signed original agreement, later amendment, purchase order, deposit, and installation invoice tell different parts of the story. Keep the full sequence. Do not assume that a late payment or delivery changes the legal acquisition facts. Send ambiguous arrangements to the preparer rather than selecting the date that produces the largest deduction.
Use a cost reconciliation the reviewer can follow
Start with final project costs, subtract credits, and identify excluded or incomplete work. Tie the component list back to that total. If an allowance was removed from a general contract and the owner purchased the item directly, show the credit and replacement invoice together. A component cannot be added twice merely because two parties handled it.
Define the handoff and election responsibility
Ask who will prepare any election statement and who will confirm its timeliness and eligibility. The cost segregation provider can supply component evidence within the agreed scope; the return preparer makes the filing determination. Retain the final report, reconciliation, and filed statement together so later reviewers can understand what was claimed and why.
Primary references
Educational information. The return preparer should verify current guidance and apply it to the taxpayer’s facts.
Continue your review
- Notice 2026-11: What to Send Your Tax Preparer
- STR Renovations: Request a Useful Contractor Breakdown
- An STR Renovation Timeline for Your Cost Segregation File
Focused implementation guides
Resolve the related evidence question before carrying a planning assumption into implementation.
- Cost segregation electrical component evidence: A study identifies electrical costs but source documents do not explain the equipment or areas served.
- Cost segregation construction soft costs: Project costs include design, permits, oversight and other indirect amounts.
- Cost segregation component identifier continuity: A property has report revisions, replacement purchases and several asset schedules.