Bonus Depreciation by State: Federal §168(k) Conformity Map.
100% bonus depreciation under §168(k) is permanent at the federal level post-OBBBA (2025+). State conformity is uneven: most states conform via rolling IRC adoption, but California, New York, and New Jersey decouple. Here's what that means for your cost segregation study. For the statutory timeline from TCJA 2017 through OBBBA 2025, see our cost-segregation legal history reference.
Reviewed by Cost Seg Smart Editorial Team · Last reviewed:
The eight major bonus-depreciation non-conforming states
Each has its own statutes, forms, and workflow. The dollar impact is similar, the federal Year-1 benefit is large, the state-portion benefit defers, but the reporting mechanics differ. We maintain a dedicated deep-dive guide for each.
Other treatment groups
Not every state fits the "decouples and requires an add-back" pattern. Three groups behave differently, and each has its own deep-dive guide.
No state income tax
§168(k) conformity is not applicable to individual rental income, because there is no state income tax to conform.
Partial conformity
Conforms now, changing in 2027
What "non-conforming" actually means
State income tax codes adopt the Internal Revenue Code by reference. Rolling conformity states (most of them) automatically adopt new federal tax law as Congress enacts it: the federal §168(k) bonus deduction flows directly into the state base. Static conformity states (California, for example) adopt the IRC as of a specific date and have to update that date each legislative session. Selective conformity states adopt the IRC generally but explicitly carve out specific provisions: New York and New Jersey decouple from §168(k) this way.
The practical consequence for a cost segregation study: in conforming states, you receive the full Year-1 federal benefit on the state return as well. In non-conforming states, you compute state depreciation on a parallel schedule without bonus, and the federal-vs-state delta gets reported as an income addition (Year 1) and subtractions (later years). The total lifetime depreciation is the same; the timing differs.
Does cost segregation still pay in non-conforming states?
Almost always, yes. Federal income tax rates (10% to 37%) are 3 to 10x higher than state rates (0% to 13.3%). The federal Year-1 deduction on a typical residential cost segregation study is overwhelmingly the dominant benefit; the state-portion is meaningful but secondary. Even in California (highest non-conforming state at 13.3% / 14.4% with surcharge), the federal benefit at 37% bracket exceeds the deferred state benefit by roughly 4 to 5x.
Cost segregation in a non-conforming state is the right call when (1) you have current-year federal tax liability to offset, (2) the property is over ~$200K depreciable basis, and (3) the federal Year-1 deduction is large enough that the study fee is a small fraction of the benefit. The state non-conformity adds bookkeeping complexity but not enough to change the underlying decision.
Which states have deep-dive guides?
We now maintain dedicated guides for eight non-conforming states: California, New York, and New Jersey (the three largest by high-income real estate investor concentration), plus Pennsylvania, Georgia, Massachusetts, Arizona, and Virginia. Beyond those, we cover three no-income-tax states (Texas, Florida, Tennessee), one partial-conformity state (North Carolina), and one state changing in 2027 (Colorado). Other states that decouple from §168(k), including Connecticut, Hawaii, Minnesota, and Wisconsin, have similar mechanics but a smaller affected investor population. State conformity rules change yearly; if your property is in a state not covered by a deep dive, ask your CPA to verify current-year conformity before relying on a federal-only depreciation projection.
For a full 50-state conformity reference table covering every US state plus DC, categorical treatment (rolling / static / decoupled / no income tax) with primary statute citations and DOR source URLs, see the dedicated reference page.