Wisconsin does not allow bonus depreciation. The state has never adopted the federal first-year bonus deduction under IRC Section 168(k), and it specifically declined to adopt the permanent 100% bonus depreciation restored by the One Big Beautiful Bill Act for property acquired after January 19, 2025.1Wisconsin Department of Revenue. Instructions for 2025 Schedule 4V – Wisconsin Additions to Federal Income Every dollar you claim as bonus depreciation on your federal return has to be added back on your Wisconsin return and replaced with standard depreciation spread over the asset’s full recovery period.
That creates a two-track depreciation system: one schedule for the IRS, a separate one for Wisconsin. Keeping both schedules correct through the asset’s life and eventual sale is where almost all of the compliance work lives.
How the Wisconsin Add-Back Works
The reconciliation happens on Schedule I, which is where federal-to-state income differences are reported. Two lines do the work.
- Line 1b: enter the federal depreciation amount that includes bonus depreciation. This adds the federal deduction back to income.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
- Line 2b: enter depreciation recomputed under Wisconsin’s rules. This substitutes 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 (Depreciation and Amortization) computing depreciation under Wisconsin’s rules. Mark it “Revised for Wisconsin” at the top and attach it to your state return. If the depreciated property is tied to a passive activity, you also need to recompute federal Form 8582 for Wisconsin purposes, because the different depreciation amount changes how much passive loss you can deduct. That recomputed form carries the same “Revised for Wisconsin” label.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
A Worked Example
Suppose you buy $200,000 of equipment in 2026 with a five-year MACRS recovery period. Federally, you deduct the full $200,000 under 100% bonus depreciation. For Wisconsin, you ignore the bonus deduction and compute standard MACRS instead, which yields $40,000 in the first year under the 200% declining balance method with the half-year convention.
On Schedule I you add back $200,000 on line 1b and subtract $40,000 on line 2b. The net result: your Wisconsin taxable income is $160,000 higher than your federal taxable income for that year.
The Adjustment Doesn’t End in Year One
Because the federal basis drops to zero after you take 100% bonus depreciation while the Wisconsin basis stays intact, you keep making Schedule I adjustments every year until the asset is fully depreciated under both systems. The Schedule I instructions are explicit: if you had a depreciation difference for property placed in service on or after January 1, 2014, continue reporting the difference each year until the asset is fully depreciated or disposed of.2Wisconsin Department of Revenue. 2025 Wisconsin Schedule I Instructions
In the equipment example, years two through six look the opposite of year one. Federal depreciation is zero because the asset is already fully written off. Wisconsin depreciation continues under MACRS. Each later year you subtract the Wisconsin amount on line 2b with nothing to add back on line 1b. Over the full recovery period, total depreciation under both systems equals the same $200,000. The difference is timing, but the timing creates a real cash cost in year one and a real recordkeeping burden for years afterward.
Selling the Asset
When you sell property whose federal and Wisconsin basis have diverged, you have to compute the gain or loss separately for each. The federal gain is usually larger (or the loss smaller) because the federal basis has been reduced to zero while the Wisconsin basis still carries undepreciated cost.
Wisconsin requires Schedule T to report the basis adjustment.3Wisconsin Department of Revenue. Instructions for 2025 Schedule T For depreciable business property, use Part II of Schedule T and recompute federal Form 4797 (Sales of Business Property) using the Wisconsin basis. Label the recomputed form “Wisconsin” and include it with your state return.4Wisconsin Department of Revenue. Instructions for Schedule T – Section: Part II
This is where loose recordkeeping becomes painful. If you lose track of the Wisconsin basis partway through the asset’s life, reconstructing it at sale means going back to the original purchase and recomputing every year of depreciation. Keeping a separate Wisconsin depreciation schedule from day one is the cheap option.
Section 179 as a Partial Alternative
Wisconsin’s rejection of bonus depreciation does not extend to Section 179 expensing. The state generally conforms to the federal Section 179 limits, calculated using Wisconsin’s version of the IRC.5Wisconsin Department of Revenue. Section 179 and Depreciation Adjustments for Wisconsin For 2026 the federal Section 179 limit is $2,560,000, with a phase-out beginning at $4,090,000 in total qualifying property placed in service.
Section 179 has two restrictions that bonus depreciation does not. It is capped: when total qualifying purchases exceed the phase-out threshold, the deduction shrinks dollar for dollar. And it cannot exceed your taxable business income for the year, so it cannot create or deepen a net loss.
You can make a different Section 179 election for Wisconsin than you made federally. If you took bonus depreciation on your federal return but want to maximize your state deduction, prepare a pro forma return reflecting a Wisconsin-specific Section 179 election and attach it to your state filing, marked “Revised for Wisconsin.”5Wisconsin Department of Revenue. Section 179 and Depreciation Adjustments for Wisconsin For purchases that fall well within the Section 179 limits, this can offset most of the sting of losing bonus depreciation at the state level.
If You Own Through an S Corp or Partnership
In a pass-through entity, the depreciation adjustment happens at the entity level, not on your personal return. The entity computes its Wisconsin-specific depreciation and reports the difference on its Wisconsin return (Form 5S for S corporations). Each shareholder or partner receives a Wisconsin Schedule K-1 reflecting 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 figures on their individual returns. If you receive a K-1 from a Wisconsin pass-through, confirm it reflects Wisconsin-adjusted depreciation rather than echoing the federal numbers.
What It Costs to Get the Add-Back Wrong
Skipping the bonus depreciation add-back understates Wisconsin taxable income, which means underpaid 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 on the unreported income.8Wisconsin State Legislature. Wisconsin Statutes 71.83 – Penalties
The 12% interest and a possible 25% penalty make this an expensive error on any sizable asset purchase. Estimated tax payments also need to account for the higher Wisconsin taxable income. If quarterly estimates are built off federal figures, they will come in short, generating additional underpayment interest on top of everything else.