Does Massachusetts Allow Bonus Depreciation? Decoupling and Section 179

Massachusetts does not allow bonus depreciation. The state disallows the federal deduction under Internal Revenue Code Section 168(k) for both individual and corporate taxpayers, so any bonus depreciation you claim on your federal return has to be added back when you calculate Massachusetts taxable income.¹ You then compute depreciation for state purposes using standard MACRS over the asset’s full recovery period. The gap between federal and state treatment matters more than ever now that the One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% federal bonus depreciation for qualifying property placed in service after January 19, 2025.²

Why the State Decoupling Is Permanent

Massachusetts ties its tax code to the federal Internal Revenue Code, but with carveouts. For individual income tax, the state adopts the Code as amended on a fixed date, currently January 1, 2024, while following certain provisions on a rolling basis.³ Section 168(k) bonus depreciation is specifically excluded regardless of the conformity date.¹

The corporate rule is equally direct. Massachusetts defines corporate net income as federal gross income minus allowable federal deductions, but the statute lists specific items that do not carry through. Section 168(k) sits on that exclusion list.⁴ Because the disallowance is written into the statutes themselves, the restoration of 100% federal bonus depreciation under the One Big Beautiful Bill does nothing to change the Massachusetts position. There is no partial conformity, no reduced state rate, and no Massachusetts-specific accelerated deduction that replaces bonus depreciation. You get standard depreciation over the asset’s full recovery life, and nothing more.

How to Compute Massachusetts Depreciation Instead

Because Massachusetts disallows the bonus deduction, you calculate state depreciation as if you had elected out of Section 168(k) on your federal return. That means standard MACRS recovery periods and methods. For most equipment and machinery with a recovery period of three to ten years, the default is the 200% declining balance method, switching to straight-line when that produces a larger deduction. Real property uses straight-line over its full recovery period.

A concrete example. You buy a $100,000 piece of five-year equipment in 2026 and place it in service that year. Federally, you deduct the entire $100,000 as bonus depreciation. On your Massachusetts return, the standard MACRS half-year convention gives you a first-year deduction of $20,000, or 20% of the cost. The remaining $80,000 spreads across the next four years under the applicable MACRS percentages.

Making the Add-Back and Later Adjustments

The reporting works in two phases. In year one, you add back the difference between the federal bonus depreciation you claimed and the standard MACRS depreciation Massachusetts allows. Using the example above, you would increase your Massachusetts taxable income by $80,000 in the year the asset is placed in service.

Every year after that, the adjustment reverses. Your federal depreciation on the asset is zero because you already wrote off the full cost, but your Massachusetts schedule keeps producing deductions. You subtract the Massachusetts depreciation from state taxable income each year until the asset is fully depreciated. Over the full recovery period, total deductions even out. In the early years, the timing gap can meaningfully increase your Massachusetts liability.

Individual taxpayers make these adjustments on the applicable schedules of Massachusetts Form 1. Corporations report the modifications on Form 355. Federally, bonus depreciation itself is reported on Part II of Form 4562, Line 14.⁵

Tracking Two Bases for the Same Asset

The add-back and subtraction pattern creates two different adjusted bases for every affected asset. Federally, the basis drops to zero after year one. For Massachusetts, it declines gradually as you claim standard depreciation. You must maintain both bases separately for the entire life of the asset plus any applicable statute of limitations period. Errors in basis tracking tend to compound, because they affect both depreciation and gain calculations in every future year.

Section 179 Is a Real Alternative

Many Massachusetts business owners miss this. While the state rejects bonus depreciation, it does conform to Section 179 expensing, which lets you immediately deduct the full cost of qualifying assets up to an annual limit.¹ For 2025, the federal Section 179 limit is $2,500,000, phasing out dollar-for-dollar once total qualifying property placed in service exceeds $4,000,000.⁵ These thresholds are adjusted annually for inflation.

Two important limits shape how Section 179 fits into a Massachusetts plan. It cannot create or increase a net operating loss, so the deduction is capped at your business’s taxable income for the year. And it requires an affirmative election for specific assets, unlike bonus depreciation, which applies automatically.

If your total equipment purchases for the year fall under the Section 179 cap, using Section 179 in place of bonus depreciation eliminates the dual-tracking problem for those assets. You still get the immediate federal write-off, and because Massachusetts conforms to Section 179, your state return matches your federal return. Any cost above the Section 179 limit would still flow to bonus depreciation federally, triggering the Massachusetts add-back on that excess only.

Passenger Vehicle Caps

Business-use passenger automobiles are subject to additional annual depreciation caps under Section 280F, regardless of whether bonus depreciation applies. For vehicles placed in service during 2026, the first-year limit with bonus depreciation is $20,300. Without bonus depreciation, the first-year cap is $12,300.⁶

Because Massachusetts disallows bonus depreciation, a vehicle that qualifies for the $20,300 federal first-year deduction is limited to the $12,300 cap on the state side. The $8,000 difference gets added back in year one and recovered through higher depreciation in later years, using the same pattern as any other decoupled asset.

Selling a Decoupled Asset

When you sell or dispose of a decoupled asset, the basis gap produces different gain or loss figures for federal and state purposes. Federally, because bonus depreciation drove basis to zero (or close to it) in year one, almost the entire sale price is taxable gain. For Massachusetts, your basis is higher, so the taxable gain is smaller.

Massachusetts requires that any gain or loss on disposition be calculated using the Massachusetts-adjusted basis, with adjustments to the federal figures made in the year of sale.¹ This final adjustment reconciles the remaining timing difference. Forgetting to adjust basis at disposition is one of the more common compliance mistakes, and it can result in overpaying Massachusetts tax on the sale.

Effect on Massachusetts Net Operating Losses

Bonus depreciation can generate a federal net operating loss because it has no income limitation. A large equipment purchase can produce a federal deduction that exceeds total business income, creating a loss that carries forward. Massachusetts computes its own NOL separately, and the state’s regulations disregard bonus depreciation in that calculation.⁷

A corporate taxpayer with a federal NOL driven by bonus depreciation may have no corresponding state loss. Massachusetts allows NOL carryforwards for up to 20 taxable years for losses in tax years beginning on or after January 1, 2010, but the loss amount must be computed using Massachusetts-allowed deductions.⁷ If your planning depends on generating a loss in a particular year, the Massachusetts numbers may not cooperate the way the federal numbers do.

Qualified Improvement Property

Qualified improvement property is interior work done to a commercial building after it was first placed in service, such as new lighting, flooring, ceilings, and interior walls. It does not include building expansions, elevators, escalators, or changes to the internal structural framework. QIP has a 15-year federal recovery period, making it eligible for 100% bonus depreciation on the federal return for property placed in service after January 19, 2025.²

For Massachusetts, that same QIP must be depreciated straight-line over 15 years with no bonus deduction. A $300,000 office renovation that vanishes from your federal books in year one produces Massachusetts deductions of roughly $20,000 per year over 15 years. The compliance mechanics match those for equipment: add back the federal bonus, subtract the Massachusetts depreciation each year, and track the separate basis. Because QIP projects tend to involve larger dollar amounts than individual pieces of equipment, the cash-flow effect of the timing difference is often more significant.

1
Mass.gov. TIR 03-25 – Depreciable Business Assets; Modifications for Decoupling From Federal Bonus Depreciation
2
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
3
Mass.gov. Massachusetts General Laws Chapter 62 Section 1
4
General Court of Massachusetts. Massachusetts General Laws Chapter 63, Section 30
5
Internal Revenue Service. Instructions for Form 4562
6
Internal Revenue Service. Rev. Proc. 2026-15
7
Mass.gov. 830 CMR 63.30.2 – Net Operating Loss Deductions and Carry Forward