A shopkeeper fixes the marked price of an item 110%

Let the Cost Price (CP) = 100

Marked Price is 110% above CP.

So,

Marked Price = $100+110=210$

To gain 26%, Selling Price should be:

$100+26=126$

Let discount be $x%$

Then,

$210\left(1-\frac{x}{100}\right)=126$

$\left(1-\frac{x}{100}\right)=\frac{126}{210}$

$\left(1-\frac{x}{100}\right)=0.6$

$\frac{x}{100}=0.4$

$x=40$

Final Answer: 40%