Kentucky Bonus Depreciation: Frozen Before It Existed.
Kentucky computes §168 depreciation as the Code stood on December 31, 2001 — a date that predates federal bonus depreciation itself. This is not a decoupling from a later change; no bonus has ever been allowable for Kentucky purposes, for any tax year.
Reviewed by Cost Seg Smart Editorial Team · Last verified against KRS 141.0101(16) — depreciation frozen at 2001-12-31
The 30-second answer: Kentucky never allows federal bonus depreciation, for individuals or corporations, and it isn't a case of decoupling from a later law.
KRS 141.0101(16)(a) computes Kentucky depreciation under §168 as the Code existed on December 31, 2001 — a date that predates the Job Creation and Worker Assistance Act of 2002, the law that created bonus depreciation. There is nothing to add back, because the frozen baseline never included it. Reaffirmed as recently as a 2026 amendment, so this is live, maintained policy.
On a representative Kentucky single-family rental (the single-family rental band we publish, 9–32% of depreciable basis reclassified, 16% representative), the reclassified components alone generate an estimated $18K–$165K of federal Year-1 depreciation — roughly $6,660–$61,570 of federal Year-1 tax savings at the 37% top bracket, none of which reduces Kentucky income tax the same way; Kentucky depreciates the same components under pre-2002 §168 rules instead.
Federal vs Kentucky, Side by Side
For an individual investor's or Kentucky corporation's cost-segregation-reclassified components:
| Tax provision | Federal (IRC) | Kentucky |
|---|---|---|
| Bonus depreciation under §168(k) | 100% may apply to qualified property acquired and placed in service after January 19, 2025, subject to §168(k) eligibility, related-party/prior-use, binding-contract, and election rules | Never allowed. Depreciation computed under §168 as of 2001-12-31 (KRS 141.0101(16)(a)), before bonus depreciation existed |
| Who this applies to | Not applicable | Individuals and corporations alike — no taxpayer-type split |
| Section 179 expensing | Governed by current §179 limits | Separately frozen at the Code as of 2003-12-31 for property placed in service 2020-01-01+; federal phase-out disabled |
| Is this active policy? | Not applicable | Yes. Reaffirmed as recently as a 2026 amendment to KRS 141.0101 |
| Federal usability of the deduction | Subject to passive activity, at-risk, basis, and business-interest limits | Same federal limits govern the federal deduction; Kentucky's frozen baseline applies independently |
Source: KRS 141.0101(16) — depreciation frozen at 2001-12-31; IRC §168(k). Federal bonus figures reflect current law; eligibility depends on acquisition and placed-in-service dates and elections.
Why "decoupled" is the wrong word for Kentucky
Most states that do not allow bonus depreciation got there by decoupling: their general conformity provision would otherwise pick up §168(k), so the legislature wrote an explicit carve-out excluding it — Hawaii's statute even says §168(k) "shall not be operative." That is a state actively excluding a rule its own conformity structure would otherwise import.
Kentucky's mechanism is different in kind. KRS 141.0101(16)(a) computes Kentucky depreciation under §168 as it existed on December 31, 2001 — and bonus depreciation was created by the Job Creation and Worker Assistance Act of 2002, which took effect after that date. There is no carve-out to write, because the frozen version of §168 that Kentucky uses simply predates the provision. It is a permanent and total disallowance, not a decoupling from a modern rule.
This freeze is not stale, forgotten text either: it was reaffirmed as recently as a 2026 amendment to the same section, so it reflects a standing, actively maintained legislative choice rather than an old provision nobody has revisited since 2001.
The correct citation is KRS 141.0101(16), not KRS 141.010 — the latter carries a separate general conformity date and does not govern this depreciation freeze.
Illustrative numbers: a Kentucky single-family rental
Using the single-family residential (SFR) band we publish — 9–32% of depreciable basis reclassified into 5/7/15-year property, 16% representative — on a property priced between $250,000 and $650,000, with a 20% residential land allocation, and 100% federal bonus depreciation for eligible components under current law:
| Line item | Federal | Kentucky |
|---|---|---|
| Purchase price band | $250,000–$650,000 | Same property |
| Depreciable basis (20% land allocation) | $200,000–$520,000 | Same basis; depreciated under pre-2002 §168 |
| Reclassified to 5/7/15-yr (9–32% of basis) | $18K–$165K | Not applicable — no bonus baseline exists to apply it to |
| Year-1 treatment | $18K–$165K deducted (100% bonus, if eligible) | Ordinary pre-2002 §168 MACRS Year-1 depreciation only |
| Later-year treatment | Not applicable (already deducted) | Reclassified basis recovered over the full ordinary MACRS life |
| Marginal tax rate | Up to 37% | Kentucky individual income tax rate (verify current year with the Kentucky Department of Revenue) |
| Illustrative Year-1 federal tax savings on reclassified components | ~$6,660–$61,570 (37% × $18K–$165K) | No comparable state-level acceleration; recovered on the ordinary schedule instead |
Figures are illustrative and use the site's published SFR reclassification band; your result depends on your basis, land allocation, bracket, component mix, and eligibility. Whether the full federal deduction is usable in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation — those are federal questions independent of Kentucky's own frozen depreciation baseline.
See a sample cost segregation report
Look at exactly what your Kentucky study delivers: the component-by-component 5/7/15-year schedule, the Form 4562-ready numbers, and the documentation your CPA files. Real reports are our best answer to "is this legit?"
Forms your CPA files for a Kentucky property
The federal side is unaffected by Kentucky's rule; the Kentucky side never applies bonus depreciation at all, so there is no addition or subtraction schedule to track:
- Federal Form 4562: depreciation and amortization, including the §168(k) bonus deduction on eligible reclassified components. Flows to Schedule E (rental), Schedule C (active business), or the applicable corporate return.
- Schedule E (or Schedule C): the accelerated federal deduction reduces federal taxable income in Year 1, subject to the federal passive-loss, at-risk, basis, and business-interest limits.
- Kentucky return: depreciation is computed as if the Code stood on 2001-12-31 — no bonus figure to add back, because none was ever available.
- Form 3115 §481(a) section: included only if this is a federal lookback method change on a property placed in service in a prior year (see below); the Kentucky-side depreciation for the catch-up period still follows the frozen baseline.
The reclassified schedule is the same engineered output for both books; Kentucky simply computes a different, older depreciation method against it.
Form 3115 lookback on a Kentucky property
If the property was placed in service in a prior tax year and depreciation was reported using a non-segregated method, a federal Form 3115 (Application for Change in Accounting Method) may allow a current-year §481(a) catch-up adjustment for the accelerated depreciation you missed, generally without amending prior returns. This is often the single biggest acceleration mechanism in cost segregation. Any catch-up dollars are illustrative and depend on placed-in-service date, prior depreciation claimed, bonus eligibility, land allocation, and component mix.
The federal §481(a) catch-up is the primary lever and remains fully available for a Kentucky property. What does not change is that Kentucky's own depreciation for the same property continues to run under the pre-2002 §168 rules — the catch-up mechanics affect the federal return only.
See our full Form 3115 cost segregation guide for federal mechanics, partnership and LLC pass-through treatment, and timing rules.
Should you still do cost segregation in Kentucky? Usually yes.
Kentucky's total disallowance is real and should be weighed honestly — this is not a case of "deferred, not lost" the way several other decoupled states are. Even so, the case for a study generally still holds:
- The full federal Year-1 bonus is unaffected. Kentucky's rule applies only to the Kentucky return; the federal §168(k) bonus is claimed in full. How much you use in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation.
- Reclassification still matters for the ordinary MACRS schedule. Even without bonus depreciation, correctly identifying which components belong in 5-, 7-, and 15-year property (rather than lumping everything into 27.5 or 39-year real property) accelerates Kentucky depreciation relative to no study at all — just without the Year-1 spike.
- The Form 3115 lookback still captures missed federal years. If the property was placed in service in a prior year and depreciated without cost segregation, the federal §481(a) catch-up may be available, generally without amending prior returns.
The nuance to flag with your CPA is honesty about magnitude: model the Kentucky-side benefit on the ordinary MACRS acceleration from reclassification alone, not on the federal bonus figure, since Kentucky depreciation never includes bonus at all.
Frequently asked
Does Kentucky allow bonus depreciation?
No, and it never has. Kentucky depreciation under §168 is computed as the Code stood on December 31, 2001 (KRS 141.0101(16)(a)) — a date that predates federal bonus depreciation, which was created by the Job Creation and Worker Assistance Act of 2002. This is not decoupling from a later federal change; Kentucky's depreciation rules simply do not include bonus depreciation for any tax year, because the frozen baseline is from before it existed.
Is Kentucky's treatment the same as a state that decoupled from bonus depreciation?
No, and the distinction matters. A decoupled state (like Hawaii or South Carolina) affirmatively excludes a bonus depreciation provision that its general conformity date would otherwise pick up. Kentucky's conformity date is frozen before bonus depreciation existed at all, so there is nothing to exclude — it is a permanent and total disallowance built into an old baseline, not a carve-out from a modern one.
Does the Kentucky depreciation freeze apply differently to individuals and corporations?
No. KRS 141.0101(16)(a) applies generally under the income tax chapter with no individual/corporate split — the §168 deduction as of 2001-12-31 is what both taxpayer types get, exclusive of every later amendment including bonus depreciation.
Is this an old, forgotten rule, or is it actively enforced?
It is active, maintained policy. The freeze was reaffirmed as recently as a 2026 amendment to KRS 141.0101, so this is not stale text nobody has revisited — it is a standing legislative choice to keep Kentucky's depreciation baseline at 2001.
Does Kentucky also disallow federal Section 179 expensing?
Kentucky's §179 treatment is separately frozen, at the Code as it stood on December 31, 2003, for property placed in service on or after January 1, 2020, and Kentucky disables the federal §179 phase-out. This is a different provision from the §168 bonus depreciation freeze, and a reader should not assume the two move together or conflate one figure with the other.
Is cost segregation still worth it in Kentucky?
Yes, for the federal benefit — Kentucky's disallowance is entirely state-side and does not touch the federal return. An individual or corporate taxpayer still claims the full federal §168(k) bonus (100% may apply to qualified property acquired and placed in service after January 19, 2025, subject to §168(k) eligibility, related-party/prior-use, binding-contract, and election rules) on the federal return; on the Kentucky return, the reclassified components are instead depreciated under the pre-2002 §168 rules, with no bonus allowance at all. Whether the full federal deduction is usable in the current year still depends on federal passive-activity, at-risk, basis, and business-interest limits.
Can I use Form 3115 on a Kentucky property I bought years ago?
Often, yes, at the federal level. If the property was placed in service in a prior tax year and depreciation was reported using a non-segregated method, a federal Form 3115 (Application for Change in Accounting Method) may allow a current-year §481(a) catch-up for the accelerated depreciation you missed, generally without amending prior returns. On the Kentucky side, the catch-up's Kentucky depreciation is computed under the frozen 2001-12-31 version of §168 the same as any other year — the federal catch-up mechanics do not change Kentucky's permanent bonus disallowance.
Related guides
- Bonus depreciation by state: overview
- All 50 states: conformity reference table
- South Carolina bonus depreciation (decoupled)
- Ohio bonus depreciation (decoupled, 5/6 add-back)
- Indiana bonus depreciation (decoupled since 2002)
- Form 3115 cost segregation lookback: §481(a) mechanics
- What is cost segregation: the full primer
- Sample cost segregation reports