Wisconsin does not allow bonus depreciation. The state has never adopted the federal first-year bonus deduction under IRC Section 168(k), and it declined to adopt the permanent 100% bonus depreciation restored by the One Big Beautiful Bill Act in 2025.1Wisconsin Department of Revenue. Instructions for 2025 Schedule 4V – Wisconsin Additions to Federal Income Every dollar of bonus depreciation you claim federally has to be reversed on your Wisconsin return and replaced with standard depreciation spread over the asset’s full recovery period.
That leaves you running two depreciation schedules for the same asset: one for the IRS, another for Wisconsin. The compliance work is real, and it lasts until the asset is fully depreciated or sold.
How to Reverse Bonus Depreciation on Your Wisconsin Return
The reconciliation happens on Schedule I, where every difference between federal and Wisconsin income gets reported. Two lines carry the adjustment:
- Line 1b (addition): the full federal depreciation amount that included bonus depreciation. This adds the accelerated deduction back to income.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
- Line 2b (subtraction): depreciation recomputed under Wisconsin’s rules, which is the standard MACRS deduction the state allows.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
To support both entries, prepare a revised federal Form 4562 computing depreciation under Wisconsin’s rules, mark it “Revised for Wisconsin” at the top, and attach it to your state return. If the depreciation belongs to a passive activity, you also recompute Form 8582 for Wisconsin and mark that copy the same way, because the different depreciation figure changes how much passive loss you can deduct.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
A Worked Example
Say you buy $200,000 of equipment in 2026 with a five-year MACRS recovery period. Federally, you write off the full $200,000 in year one under 100% bonus depreciation. For Wisconsin, you ignore that and compute standard MACRS instead. Using the 200% declining balance method with the half-year convention, that produces $40,000 of first-year depreciation.
On Schedule I, you add back $200,000 on line 1b and subtract $40,000 on line 2b. Wisconsin taxable income ends up $160,000 higher than federal taxable income for that year.
Why Wisconsin Doesn’t Follow Federal Bonus Depreciation
Wisconsin uses static conformity: its tax code adopts the Internal Revenue Code as of a specific past date rather than tracking every federal change automatically. For depreciation, the state uses the IRC in effect on January 1, 2014, when bonus depreciation was not part of state law.1Wisconsin Department of Revenue. Instructions for 2025 Schedule 4V – Wisconsin Additions to Federal Income
When the legislature reviewed the One Big Beautiful Bill Act, it specifically excluded the section restoring 100% bonus depreciation from the provisions Wisconsin adopted.1Wisconsin Department of Revenue. Instructions for 2025 Schedule 4V – Wisconsin Additions to Federal Income The nonconformity is a deliberate policy choice, and it has been reaffirmed with every major federal tax law since 2014. Don’t expect it to change.
Tracking Basis in Later Years
The first-year add-back is not the end of it. Because federal basis drops to zero after 100% bonus depreciation while Wisconsin basis stays high, you have a Schedule I adjustment every year until the asset is fully depreciated under both systems. The instructions require you to keep reporting the difference each year for any property placed in service on or after January 1, 2014, until the asset is fully depreciated or disposed of.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
Using the $200,000 equipment example, years two through six flip the direction of the adjustment. Federal depreciation is zero because the full cost was written off in year one. Wisconsin depreciation continues on the MACRS schedule. Each year you subtract Wisconsin depreciation on line 2b with nothing to add back on line 1b. By the end of the recovery period, total depreciation under both systems equals $200,000. The difference is timing, but the timing creates a real cash cost in year one and a real recordkeeping burden across the asset’s life.
Selling the Asset
When you sell an asset with different federal and Wisconsin basis, you compute gain or loss separately for each. Federal gain is usually larger (or loss smaller) because federal basis was zeroed out by bonus depreciation while Wisconsin basis still has undepreciated cost.
Report the basis adjustment on Schedule T. For depreciable business property, use Part II of Schedule T and then recompute federal Form 4797 using the Wisconsin basis. Label the recomputed form “Wisconsin” and include it with your state return.3Wisconsin Department of Revenue. Instructions for 2025 Schedule T4Wisconsin Department of Revenue. Instructions for Schedule T – Section: Part II
If Wisconsin basis was not tracked separately from day one, reconstructing it at sale time means going back to the acquisition and recomputing every year of depreciation. Keep a standing Wisconsin depreciation schedule alongside the federal one.
Section 179 as a Partial Workaround
Wisconsin’s rejection of bonus depreciation does not extend to Section 179. The state generally conforms to federal Section 179 limits, though those limits apply using Wisconsin’s version of the IRC.5Wisconsin Department of Revenue. Section 179 and Depreciation Adjustments for Wisconsin For 2026, the federal Section 179 deduction limit is $2,560,000, with a phase-out beginning at $4,090,000 of qualifying property placed in service.
Section 179 differs from bonus depreciation in two ways that matter here. It is capped, so once total equipment purchases pass the phase-out threshold the deduction shrinks and eventually disappears. It also cannot exceed taxable business income for the year, so it cannot create or increase a loss. Bonus depreciation has neither restriction federally, which is why larger buyers prefer it when it is available.
You can make a different Section 179 election for Wisconsin than you made federally. If you took bonus depreciation on the federal return but want to accelerate the Wisconsin deduction, prepare a pro forma return with a Wisconsin-specific Section 179 election, mark it “Revised for Wisconsin,” and attach it to the state filing.5Wisconsin Department of Revenue. Section 179 and Depreciation Adjustments for Wisconsin For smaller purchases that fit within the Section 179 limits, this can substantially close the gap left by the missing bonus deduction.
Pass-Through Entities
If you operate through an S corporation or partnership, the depreciation adjustment happens at the entity level. The entity computes Wisconsin-specific depreciation, reports the difference on its Wisconsin return (Form 5S for S corporations), and issues a Wisconsin Schedule K-1 that reflects the state-adjusted figures.6Wisconsin Department of Revenue. Publication 102 – Wisconsin Tax Treatment of Tax-Option (S) Corporations and Their Shareholders
Owners use the Wisconsin K-1 numbers on their individual Wisconsin returns. If you receive a K-1 from a Wisconsin pass-through, verify that it reflects Wisconsin-adjusted depreciation and does not simply mirror the federal figures.
What It Costs to Get Wrong
Skipping the add-back understates Wisconsin taxable income and underpays Wisconsin tax. The Department of Revenue charges underpayment interest at 12% per year for the period of the underpayment.7Wisconsin Department of Revenue. Underpayment Interest If the department finds the return was incomplete or incorrect, the negligence penalty is 25% of the additional tax owed.8Wisconsin State Legislature. Wisconsin Statutes 71.83 – Penalties
Estimated payments need the same treatment. If you compute Wisconsin quarterly estimates using federal taxable income, you will underpay every quarter and stack more underpayment interest on top of the depreciation error. Build the Schedule I adjustment into your estimates the same year you place the asset in service.