Does Massachusetts Allow Bonus Depreciation? Section 179 and Add-Backs

Massachusetts does not allow bonus depreciation. The state disallows the federal Section 168(k) deduction for both individual and corporate taxpayers, so any accelerated first-year write-off you claim on your federal return has to be stripped back out when you compute Massachusetts taxable income.¹ You still get to depreciate the asset for state purposes, but only on the standard MACRS schedule over its full recovery life. The practical cost is paperwork: a separate depreciation schedule, a separate adjusted basis, and annual adjustments on your Massachusetts return for the entire life of every affected asset.

This gap matters more now than it used to. The One Big Beautiful Bill Act, signed July 4, 2025, permanently restored federal bonus depreciation to 100% for qualified property acquired and placed in service after January 19, 2025.² Massachusetts is unmoved by that change.

Why the State Doesn’t Follow the Federal Rule

Massachusetts conforms to the Internal Revenue Code on a mix of rolling and fixed-date bases, with specific carve-outs written into statute. Section 168(k) bonus depreciation is one of those carve-outs. For personal income tax, the disallowance applies regardless of the general conformity date.¹ For the corporate excise, Chapter 63 Section 30 lists Section 168(k) as a deduction that does not carry over from the federal computation of net income.³

Because the rule sits in the statute itself, nothing Congress does to the federal bonus percentage changes the Massachusetts answer. There is no partial conformity, no reduced state rate, and no Massachusetts-specific accelerated deduction that substitutes for the federal one.

How to Figure Massachusetts Depreciation Instead

For state purposes you compute depreciation as if you had elected out of Section 168(k) on your federal return. That means standard MACRS: the 200% declining balance method for most equipment and machinery with a recovery period of three to ten years (switching to straight-line when that produces a larger deduction), straight-line for real property over its full recovery period, and the half-year convention for most assets placed in service during the year.

A quick example. Say you buy a $100,000 piece of five-year equipment in 2026 and place it in service that year. On your federal return you deduct the full $100,000 as bonus depreciation. On your Massachusetts return your first-year deduction is $20,000, the standard 20% that MACRS allows under the half-year convention. The remaining $80,000 is spread across the next four tax years at the applicable MACRS percentages.

That split creates two different adjusted bases for the same asset. Federally, basis drops to zero after year one. For Massachusetts, basis decreases gradually as you claim standard depreciation. You need to track both bases separately for every affected asset, for the full life of the asset plus the applicable statute of limitations period. Errors here compound, because basis feeds both annual depreciation and gain or loss at sale.

Reporting the Add-Back and Later Subtractions

The adjustment runs in two phases. In the first year an asset is placed in service, you add back the difference between the federal bonus depreciation claimed and the Massachusetts standard depreciation allowed. In the $100,000 example, you add $80,000 to Massachusetts taxable income in year one.

In each later year the direction reverses. Federal depreciation on that asset is zero because you already wrote it off, but your Massachusetts schedule keeps producing deductions. You subtract the Massachusetts depreciation amount from state taxable income each year until the asset is fully depreciated. Over the full recovery period the totals even out; the timing difference is what hits early-year cash flow.

Individual taxpayers make these adjustments on the applicable schedules of Massachusetts Form 1. Corporations report them on Form 355.¹

What Happens When You Sell the Asset

Different bases produce different gain or loss figures. Federally, because bonus depreciation reduced basis to zero (or close to it) in year one, almost the entire sale price is taxable gain. For Massachusetts, basis is higher because you depreciated the asset slowly, so the state taxable gain is smaller.

Massachusetts requires gain or loss on disposition to be calculated using the Massachusetts-adjusted basis, with adjustments to the federal gain or loss figures made in the year of sale.¹ This closes out any remaining timing difference. Skipping the basis adjustment at sale is a common mistake and typically results in overpaying Massachusetts tax.

Section 179 Is the Workaround

Massachusetts 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 deduction limit is $2,500,000, and the deduction begins to phase out dollar-for-dollar once total qualifying property placed in service exceeds $4,000,000.⁴ Both thresholds are inflation-adjusted each year.

Two differences matter when you’re deciding which deduction to use. Section 179 cannot create or increase a net operating loss; the deduction is capped at your business’s taxable income. Bonus depreciation has no such income limit. Section 179 also requires an affirmative election for specific assets, while bonus depreciation applies automatically.

If your equipment purchases for the year fall under the Section 179 limit, electing Section 179 for those assets keeps your federal and Massachusetts first-year deductions in sync and eliminates the dual-tracking problem for anything covered by the election. Any cost above the Section 179 cap still flows to bonus depreciation federally, which still triggers the Massachusetts add-back on that excess.

Business Vehicles

Passenger automobiles used in business are subject to additional annual depreciation caps under Section 280F. For vehicles placed in service during 2026, the first-year limit is $20,300 with bonus depreciation and $12,300 without.⁵ Because Massachusetts disallows bonus, the state first-year deduction is capped at $12,300. The $8,000 gap gets added back in year one and recovered through larger deductions in later years, following the same pattern as any other decoupled asset.

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 and is eligible for 100% federal bonus depreciation when placed in service after January 19, 2025.²

For Massachusetts, the same QIP has to be depreciated straight-line over 15 years with no bonus. A $300,000 renovation that disappears from your federal books in year one will produce Massachusetts deductions of roughly $20,000 per year over 15 years. Because QIP tends to run into large dollar amounts, the cash-flow effect of the timing difference is often more painful than it is for individual pieces of equipment.

Net Operating Losses

Bonus depreciation can push you into a federal NOL because it has no income limit. Massachusetts computes its NOL separately, and its regulations state that bonus depreciation is disregarded in that calculation. A corporate taxpayer with a federal NOL driven by bonus depreciation may show no corresponding state loss. Massachusetts allows NOL carryforwards for up to 20 taxable years for losses incurred in tax years beginning on or after January 1, 2010, but the loss has to be computed using the deductions Massachusetts actually allows.⁶ If your planning assumes a loss year, run the Massachusetts numbers separately before you count on it.

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
General Court of Massachusetts. Massachusetts General Laws Chapter 63, Section 30
4
Internal Revenue Service. Instructions for Form 4562
5
Internal Revenue Service. Rev. Proc. 2026-15
6
Mass.gov. 830 CMR 63.30.2 – Net Operating Loss Deductions and Carry Forward