Does Arkansas Allow Bonus Depreciation? Addback, Sales, and Section 179

No. Arkansas does not allow bonus depreciation. The state adopts most of the federal depreciation rules under IRC Section 168 but deliberately leaves out subsection (k), the provision that grants the accelerated first-year write-off. You compute your Arkansas depreciation as if bonus depreciation never existed, and you add back the federal deduction on your state return. The gap between federal and Arkansas depreciation is now as wide as it has ever been, because the One Big Beautiful Bill Act made 100 percent federal bonus depreciation permanent for qualified property acquired after January 19, 2025.¹

Why Arkansas Says No

Arkansas Code Section 26-51-428 adopts IRC Sections 167 and 168(a) through (j) for state depreciation purposes. Subsection (k), the bonus depreciation provision, is not on that list.² The result is that Arkansas keeps the standard MACRS framework, including recovery periods, the 200 percent declining balance method, and the mid-year convention, while excluding the accelerated first-year deduction.

The Department of Finance and Administration puts it plainly in the instructions to Form AR1100ADJ: “Arkansas does not conform to the federal bonus depreciation provisions. The Arkansas deduction must be computed as if those provisions were not in effect.”³

How to Recompute Depreciation for Arkansas

Because Arkansas ignores bonus depreciation, you run a separate depreciation calculation for state purposes using the standard MACRS tables under IRC Section 168(a) through (j), with the asset’s full cost basis and the applicable recovery period.⁴

A concrete example. You place a $200,000 piece of five-year property in service in 2026:

On the federal return, you deduct the entire $200,000 in year one under 100 percent bonus depreciation. Federal adjusted basis drops to zero.
On the Arkansas return, you deduct roughly $40,000 in year one (20 percent under MACRS 200 percent declining balance for five-year property). The remaining $160,000 is deducted over the next four years.

That first-year gap creates a basis difference you have to track for every affected asset until the state depreciation catches up or you sell the property. Keep a separate Arkansas depreciation schedule for each asset. Federal and Arkansas bases diverge the moment the asset is placed in service and do not converge again until the end of the recovery period.

Where the Addback Goes on Your Return

Every entity type has to reconcile the difference, but the specific form depends on how the business is organized.

Corporations

Corporations report the addback on Form AR1100ADJ, Line 3, adding the excess federal bonus depreciation back to arrive at Arkansas taxable income.³ Form AR1100REC walks through the depreciation reconciliation in more detail; its instructions direct you to subtract the amounts from federal Form 4562 that represent special depreciation allowances and any other bonus depreciation.⁵

Individuals and Pass-Through Owners

Depreciation differences from a partnership or S-corporation flow through to the owners. Individuals report gain and loss adjustments on Form AR1000D, which notes that “Arkansas did not adopt the federal ‘bonus depreciation’ provision from previous years. Therefore, there may be a difference in federal and Arkansas amounts of depreciation allowed.”⁶ Lines 2, 5, and 10 hold the depreciation-related adjustments.

Missing the addback is not just a paperwork issue. It understates Arkansas taxable income and creates an underpayment, and Arkansas charges interest and penalties that grow the longer the error sits.

What Happens When You Sell the Asset

The basis gap affects the sale, not just the annual deduction. Federally, an asset fully expensed through bonus depreciation has a basis of zero, so the whole sale price is taxable gain. For Arkansas, the asset still carries undepreciated basis, so the taxable gain is lower.

The AR1100REC instructions flag this: there “may be a gain or loss adjustment that relates to depreciable property included on Federal Form 4797 or Federal Schedule D with basis difference in Arkansas due to prior year depreciation adjustments.”⁵ Individuals make the same adjustment on Form AR1000D.⁶ This is where thin recordkeeping catches up with you. If you haven’t kept separate Arkansas depreciation schedules, reconstructing the correct state basis years later is a real problem.

Section 179 Is Still on the Table

Arkansas blocks bonus depreciation, but it does conform to federal Section 179 expensing, which lets you deduct the full cost of qualifying equipment in the year it is placed in service, up to a cap. Arkansas adopted IRC Section 179 as in effect on January 1, 2022.²

Two caveats. The Arkansas limits sit below the current federal limits because the state is pinned to the 2022 version of the code. For tax years beginning on or after January 1, 2024, the Arkansas Section 179 deduction limit is $1,220,000, with phase-out beginning at $3,050,000 in total equipment purchases.⁷ The 2026 federal limits are $2,560,000 and $4,090,000. Purchases that land between the two caps produce another state-federal reconciliation. And Section 179 can only reduce taxable income to zero for the year; it cannot create a loss the way bonus depreciation sometimes can.

For many small and mid-size Arkansas businesses, Section 179 is the cleanest way to get an immediate state-level deduction on equipment without the addback and basis-tracking work that bonus depreciation forces on you.

1
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
2
Justia Law. Arkansas Code 26-51-428 – Depreciation and Expensing of Property
3
Arkansas Department of Finance and Administration. Instructions for Form AR1100ADJ
4
Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System
5
Arkansas Department of Finance and Administration. AR1100REC Instructions
6
Arkansas Department of Finance and Administration. AR1000D Capital Gains
7
Arkansas Department of Finance and Administration. Sub-Chapter S Corporation Income Tax Instructions