Updated: February 2026
How Your State Affects Section 179 and Bonus Depreciation
State treatment of Section 179 can differ significantly from federal treatment. Even if you can expense equipment on your federal return, your state return may cap Section 179, require add-backs for bonus depreciation, or spread deductions over multiple years. This guide explains the most common state conformity patterns and what to check when planning for 2026.
Key takeaways for 2026
- Your federal Section 179 election doesn’t automatically equal your state deduction.
- Many states conform to Section 179 but decouple from bonus depreciation (often requiring an add-back and later subtraction).
- Some states cap Section 179 at a lower amount or require different depreciation methods.
- If you file in multiple states, track where assets are placed in service and maintain state-specific depreciation schedules.
- Always verify your state’s current conformity rules with your Department of Revenue and a qualified tax professional.
Federal Section 179 Baseline for 2026
Before diving into state variations, here is the federal baseline for tax years beginning in 2026:
- Maximum deduction limit: $2,560,000
- Phase-out threshold: $4,090,000
- Bonus depreciation: Generally 100% for qualifying property acquired and placed in service after Jan. 19, 2025
- Timing: Deduction is claimed in the tax year the asset is placed in service (subject to limits)
Note: The Section 179 deduction phases out dollar-for-dollar when the total cost of qualifying property placed in service exceeds $4,090,000 and is fully phased out at $6,650,000.
For full federal limits, deadlines, and examples, see our Section 179 Deduction page. For how Section 179 compares with bonus depreciation (and why states often treat them differently), see Section 179 vs. Bonus Depreciation. To estimate potential federal savings, try our Section 179 Calculator.
State note: Many states start with federal taxable income, then apply their own Section 179 and bonus depreciation rules. Your state may (1) allow the federal amounts, (2) cap Section 179 at a lower amount, and/or (3) require bonus depreciation add-backs with future subtractions.
Understanding State Conformity Categories
States generally handle Section 179 and bonus depreciation in a few common ways. Before reviewing the categories below, use this checklist to confirm your state’s treatment:
How to confirm your state’s rules
- Confirm your state’s Internal Revenue Code (IRC) conformity approach (rolling vs. fixed-date conformity).
- Check whether your state allows the full federal Section 179 amount or applies a lower cap.
- Confirm whether your state conforms to bonus depreciation or requires an add-back and future subtraction.
- If you operate in multiple states, confirm how your state apportions income and handles depreciation adjustments.
- Keep a separate state depreciation schedule when your state rules differ from federal.
1. Full Conformity States
Many states largely follow federal Section 179 rules. In these states, you may see:
- State Section 179 amounts that generally match federal limits
- Similar qualifying property rules
- Fewer state depreciation adjustments
Important: Even in conforming states, bonus depreciation may be treated differently — always verify your state’s current-year rules for both Section 179 and bonus depreciation.
2. Modified Conformity States
Some states partially conform and often take a more conservative approach, such as:
- Capping the state Section 179 deduction at a lower amount than federal
- Requiring add-backs/adjustments when deductions exceed the state cap
- Decoupling from bonus depreciation (common), which can create multi-year timing differences
- Requiring a separate state depreciation schedule
3. No Income Tax States
If your state does not levy a traditional personal or corporate income tax, Section 179 may not impact state income tax. However:
- The federal Section 179 deduction still applies in full on your federal return
- Alternative business taxes may still apply (e.g., gross receipts or franchise taxes)
- Expense and depreciation rules may still matter for filings in other states where you operate
Why State Treatment Varies
Revenue and Budget Considerations
States often modify Section 179 treatment to:
- Protect against significant short-term revenue losses
- Maintain stable tax revenue streams through gradual depreciation
- Balance business incentives with budget requirements
State Tax Policy Approaches
Different states employ various strategies:
- Static vs. Rolling Conformity: Some states tie their tax codes to specific versions of the Internal Revenue Code rather than automatically adopting federal changes
- Add-backs and separate depreciation schedules: Some states require add-backs for Section 179 and/or bonus depreciation amounts that exceed state limits, then allow deductions over future years
- Industry-Specific Incentives: Some states offer full conformity for manufacturing assets or special treatment for specific property types
Strategic Planning for Businesses
Cash Flow Management
To optimize your tax position:
- Account for timing differences between federal and state deductions
- Adjust estimated tax payments to avoid underpayment penalties
- Consider the impact on your overall cash flow planning
Record Keeping Requirements
Maintain detailed records including:
- Separate depreciation schedules for federal and state filings
- Asset location documentation
- State-specific adjustment tracking
- Supporting documentation for all claimed deductions
Multi-State Operations
For businesses operating across state lines:
- Carefully allocate deductions based on each state’s rules
- Consider professional assistance for complex multi-state reporting
- Utilize specialized worksheets and tracking systems
Best Practices for Maximum Benefit
Before Major Purchases
- Verify current rules:
- Check state tax authority websites
- Consult with tax professionals
- Review recent legislative changes
- Evaluate timing:
- Consider year-end planning strategies
- Assess multi-year purchase options
- Plan around state-specific limitations
- Analyze financing options:
- Factor in both federal and state tax treatment
- Calculate true after-tax costs
- Consider working with financing partners experienced with Section 179
Common Scenarios and Solutions
Large Equipment Purchases
When state limits are significantly lower than federal limits:
- Consider spreading purchases across multiple tax years
- Evaluate alternative depreciation strategies
- Document allocation methods thoroughly
Multi-State Operations
To manage varying state rules:
- Implement robust tracking systems
- Maintain detailed documentation
- Consider professional allocation guidance
Financing Decisions
To optimize ROI calculations:
- Account for state-level differences
- Work with experienced financing partners
- Consider the timing of purchases and payments
Understanding state Section 179 conformity is crucial for modeling true after-tax cost and managing cash flow. If your state benefit is delayed (because of add-backs or lower caps), your state taxable income can be higher than federal income in year one — which can affect estimated payments and cash flow planning. Use the categories and planning steps above as a starting point, then confirm your current state treatment before making large equipment purchases. Always consult a qualified tax professional for guidance specific to your situation.
State Section 179 FAQ (2026)
Do all states allow the full federal Section 179 deduction?
Not always. Some states largely conform, some cap or modify Section 179, and many treat bonus depreciation differently. Check your state’s Department of Revenue website or consult a tax professional to confirm your state’s current rules.
If my state caps Section 179, do I lose the deduction?
Usually not. The timing changes: the remaining basis is typically recovered over multiple years under your state’s depreciation rules.
What is a bonus depreciation “add-back”?
A state add-back is an adjustment that adds back some or all federal bonus depreciation on the state return, often followed by a future subtraction or different depreciation method over time.
What is the difference between static and rolling conformity?
A state with rolling conformity automatically adopts changes to the federal Internal Revenue Code, including updated Section 179 limits. A state with static (or fixed-date) conformity ties its tax code to a specific version of the IRC and may not reflect the latest federal changes until the legislature acts.
Can I still use Section 179 if I finance equipment?
Generally, yes — Section 179 depends on eligible property being placed in service and owned by the taxpayer (even if financed). Confirm how your state treats the deduction and consult a tax professional. For more on financing options, see our Section 179 Qualified Financing page.
Does it matter where the equipment is used?
For multi-state businesses, it can. Track where assets are placed in service and used, and work with a tax professional on allocation/apportionment.
Where can I verify my state’s current Section 179 rules?
Start with your state Department of Revenue and the instructions for your state return, and confirm with a qualified tax professional. For the current federal limits and general background, see our Section 179 Deduction page.
Disclaimer: The information on this page is for general educational purposes only and does not constitute tax, legal, or accounting advice. State conformity rules can change and may vary by taxpayer type. Always confirm current guidance with your state Department of Revenue and a qualified tax professional.
Sources: IRS Rev. Proc. 2025-32 (Section 179 inflation adjustments for tax years beginning in 2026); IRS Notice 2026-11 (bonus depreciation guidance); Instructions for Form 4562.