The IRC §168(n) special depreciation deduction for qualified production property allows taxpayers to claim a 100% depreciation allowance for certain real property placed in service after July 4, 2025, and before January 1, 2031. Eligible property must be used in qualified production activity and meet other specified criteria.

New taxpayer-friendly guidance issued by the IRS, which may be relied upon while proposed regulations are promulgated, provides clarity to many unanswered questions regarding this new deduction. (IRS Notice 2026-16)

Highlights of the guidance clarify that:

• To qualify, the property (or portion of the property) must be an integral part of a qualified production activity, defined as at least 95% of the property’s space is used in the activity;
• Improvements and additions made to existing property can be treated as qualified production property;
• Lessors are generally not eligible to claim the deduction, but an exception is available if the lessor and lessee are under common control or members of a consolidated group;
• Taxpayers can designate on an election the entire unadjusted depreciable basis of eligible property as qualified production property or a designated specific dollar amount (up to the amount of the property’s unadjusted basis); and
• For the 2025 tax year only, taxpayers can establish that they are engaged in a qualified activity if the principal business activity code that the taxpayer lists on its 2025 federal income tax return is any of the NAICS codes listed under sectors 31, 32, or 33, or under subsectors 111 or 112, that appear in the 2022 North American Industry Classification System (NAICS) Manual (2022).

The guidance provides numerous examples of the concepts listed above, and outlines how a taxpayer makes the election to claim the deduction and when and how the deduction is subject to recapture.

Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.

The Governor has announced that the state is expanding its CalAssist Mortgage Relief Program to provide up to one year (previously three months) of mortgage assistance grants, up to $100,000 (previously $20,000). The state has also increased the income limits that residents must meet to qualify for the program (e.g., up to $70,000 higher for taxpayers in Los Angeles County).

Residents who previously received three months of assistance will be offered additional support, bringing total assistance to a full year.

To qualify for the grants:

• The applicant’s primary residence must have been destroyed as a result of a qualified California disaster that occurred between January 1, 2023, and January 8, 2025;
• The applicant must meet specified income limits;
• The applicant must only own one residential property; and
• The property must be an eligible property, which includes a single-family home, condo, or permanently affixed manufactured home.

Applications are free and submitted online. The funds are paid directly to mortgage servicers and never have to be repaid.

Additional information is available at:

www.calhfa.ca.gov/calassist/index.htm

Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.

The FTB has released the interest rates for the second half of 2026. (FTB Tax News (February 2026)) For the period July 1, 2026, through December 31, 2026, the rates remain unchanged from the first half of 2026:

• Personal underpayment/overpayment and corporate underpayment: 7%; and
• Corporate overpayment: 4%.

You can access historical rates at:

www.ftb.ca.gov/pay/penalties-and-interest/interest-and-estimate-penalty-rates.html

We have received numerous inquiries from tax professionals alerting us that the Form 1040-ES mailing address for payments had been changed for certain taxpayers in the 2026 instructions. We reached out to the IRS for clarification because no announcement had been made. Since that time, the IRS has removed the 2026 Form 1040-ES from their website.

We’ve been informed by the IRS that taxpayers and tax professionals should use the addresses listed on the following IRS webpages for the appropriate mailing address depending on the state in which the taxpayer is located:

www.irs.gov/filing/where-to-file-paper-tax-returns-with-or-without-a-payment
www.irs.gov/filing/where-to-file-addresses-for-taxpayers-and-tax-professionals-filing-form-1040-es

If payments were made to the wrong address, the IRS will forward the payments to the correct address. However, this is an important reminder that taxpayers should always send payments to the IRS through certified mail. This is also another reason to encourage clients to make payments electronically, to avoid these mailing address concerns.

Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.

The Governor’s office announced that over 160 lending institutions have committed to provide a streamlined process for at least one additional forbearance period of up to 90 days for qualified borrowers. This is in addition to the 12-month commitment required by AB 238 (Ch. 25-128) enacted last year. 

According to the Governor’s office, this latest commitment of an additional 90 days forbearance is subject to approval by investors such as Fannie Mae and Freddie Mac and is consistent with the terms of the Governor’s January 2025 agreement with banks. This includes offering payment options that do not include lump-sum (balloon) payments, waiving any mortgage-related late fees that accrue during the forbearance period, and not reporting late payments on forbearance amounts to credit reporting agencies.  

Additional information is available at: www.gov.ca.gov/2026/02/06/governor-newsom-announces-funding-for-la-fire-survivors-to-access-pre-built-housing-to-further-speed-recovery-and-maintain-neighborhood-character/ 

According to the updated 2026 Lapsed Appropriations Contingency Plan, IRS operations will continue to be fully funded for the first five days of a government shutdown.

The IRS will continue to fund their operations with appropriations remaining from the Inflation Reduction Act. This means there will be little to no impact on IRS operations from the government shutdown for these initial five days as filing season gets underway.

The Contingency Plan also outlines identifies which functions may continue beyond day five. However, if a shutdown is prolonged, disruptions are possible. When the government shut down for 43 days in late 2025, the IRS furloughed almost half of its workforce and paused most operations, including taxpayer call sites.

We will continue to keep you posted as news develops.

Sign up for Spidell’s Quarterly Tax Update webinar to stay ahead of the curve and get quarterly updates all year. Click here and register today.

The FTB’s network access has been restored and systems are currently back online.

Due to the network outage, the FTB is experiencing a higher volume of calls and is encouraging taxpayers and tax professionals to use MyFTB or online services to address their issues if possible.

Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.

The FTB has notified Spidell that their systems are currently down. They have stated that this does not appear to be a security-related issue.

However, FTB staff will not be able to assist taxpayers or tax professionals while their systems are down because they will be unable to access taxpayer information.

We will send another Flash E-mail when their systems are back up.

Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.

The IRS has announced that Monday, January 26, 2026, is the opening day of the 2026 income tax filing season. This is the date when the IRS officially begins accepting and processing 2025 federal income tax returns. The California Franchise Tax Board is already accepting e-filed returns.

Tax returns filed early in the filing season are generally processed faster, so filing easier returns as early as possible will help keep the filing season as smooth as possible. However, just because filing season opens on January 26 does not mean that all forms and schedules will be available by that date. Be sure to check with your software provider for release dates for any forms that are not available.

With the passage of the One Big, Beautiful Bill Act (OBBBA), the 2026 filing season contains many changes from last year. Be sure to attend Spidell’s Federal and California Tax Update webinar for a complete rundown of all the changes you need to know, including:

• The IRS’s phaseout of paper refund checks (but not payments … yet);
• How to open Trump accounts and elect federal government seed money for newborns;
• OBBBA’s new tax provisions as well as those provisions that were extended by OBBBA;
• Form updates; and
• Many more changes that occurred in 2025.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get information on the most important issues facing your practice. Click here and register today.

President Trump has signed the Disaster Related Extension of Deadlines Act (HR 1491), which makes two key changes for disaster victims. The act:

• Extends the statute of limitations period for disaster victims to file a refund claim; and
• Prohibits the IRS from mailing a payment due notice to disaster victims until 60 days after the disaster postponement period.

Federal law allows taxpayers to file a refund claim within three years from the time the taxpayer’s return was filed or two years from the time the tax was paid, whichever expires later. However, the amount that may be refunded is limited to the amount of tax paid within the statutory lookback period. The lookback period for taxpayers who file a refund claim within three years of filing the taxpayer’s return is equal to three years plus the period of any extension of time for claiming the return. Otherwise, the lookback period is two years.

Under prior law, disaster postponements were not treated as an “extension,” so even though taxpayers were granted postponements to pay the tax, the lookback period was not extended to include the disaster postponement period. This frequently resulted in taxpayers being unable to claim excess withholding or estimated tax payments which were deemed paid as of the original due date, without regard to the postponement period.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get information on the most important issues facing your practice. Click here and register today.

Proposed regulations clarify the eligibility requirements for the new IRC §163(h)(4) deduction for interest paid on qualified passenger loan vehicles purchased for personal use that is available for the 2025 through 2028 tax years. (REG-113515-25) The deduction is capped at $10,000 annually and is subject to phaseout for taxpayers with modified AGI above $150,000 ($250,000 MFJ). One of the requirements for the deduction is that the original use of the vehicle must commence with the taxpayer.

Highlights of the proposed regulations clarify that:

• Only an individual, decedent’s estate, nongrantor trust, or disregarded entity (e.g., nongrantor trust or SMLLC) owned by one of these taxpayers can claim the deduction (assuming the other requirements are met);
• The personal use requirement is met if at the time of purchase the taxpayer estimates that the vehicle will be used more than 50% of the time for personal use. Taxpayers do not have to reevaluate the personal use requirement in subsequent years. For disregarded entities the determination is made at the owner level, and for estates and trusts this is determined based on the expected use by the heirs or beneficiaries;
• A taxpayer that uses a vehicle partially for business use can choose to deduct the interest as a business expense, but must reduce the auto loan interest deduction claimed on Schedule 1-A by the amount of business interest claimed;
• The $10,000 limit applies per return, so MFJ filers are limited to a $10,000 deduction, while taxpayers who file MFS would be entitled to up to $10,000 per spouse;
• Interest attributable to amounts directly related to the purchase of the vehicle (e.g., vehicle service plans, extended warranties, sales taxes, and vehicle-related fees) qualifies for the deduction; and
• Although interest paid on refinanced loans qualifies for the deduction, the deduction is limited to interest paid on the outstanding balance of the refinanced loan as of the date of the refinancing.

The proposed regulations also outline the reporting requirements for lenders, but lenders were given transitional relief for the 2025 tax year. (IRS Notice 2025-57) See our October 21, 2025, Flash E-mail for details.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get information on the most important issues facing your practice. Click here and register today.

Beginning January 1, 2026, the standard mileage rates for the use of a car, van, pickup truck, or panel truck are:

• 72.5 cents per mile driven for business use, up 2.5 cents from 2025;
• 20.5 cents per mile driven for medical purposes, down 0.5 cents from 2025;
• 20.5 cents per mile for moving purposes for qualified active-duty members of the Armed Forces and intelligence community, down 0.5 cents from 2025; and
• 14 cents per mile driven in service of charitable organizations, unchanged from 2025.
  (IRS Notice 2026-10)

The rates apply to fully electric and hybrid vehicles, as well as gasoline and diesel-powered vehicles.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get information on the most important issues facing your practice. Click here and register today.

President Trump issued an Executive Order directing the Attorney General to take all necessary steps to complete the rulemaking process related to rescheduling cannabis from a Schedule I drug to a Schedule III drug under the Controlled Substances Act (CSA).

Rescheduling cannabis as a Schedule III drug is significant for taxpayers involved in the cannabis industry because under IRC §280E businesses trafficking in Schedule I or II drugs under the CSA cannot claim any business-related deductions or credits, except cost of goods sold.

It’s important to recognize that the Executive Order does not, in and of itself, reclassify cannabis as a Schedule III drug. The Attorney General’s office must issue regulations to complete the reclassification process, which likely wouldn’t happen until sometime during the 2026 calendar year.

Despite reclassification as a Schedule III drug, cannabis would remain illegal at the federal level, so it’s unlikely that the reclassification would open up more banking opportunities to cannabis businesses.

Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get information on the most important issues facing your practice. Click here and register today.