Michigan Bonus Depreciation: Two Different Answers, By Entity Type.
Michigan decouples from federal §168(k) — but not the same way for everyone. A corporation gets no state-level bonus at all. An individual gets a bonus figure frozen at the rate the law allowed on December 31, 2024, not the current 100%. Confusing the two produces a wrong answer for one of them.
Reviewed by Cost Seg Smart Editorial Team · Last verified against MCL 206.607 — corporate income tax base, MCL 206.30 — individual adjusted gross income
The 30-second answer: Michigan is decoupled from federal §168(k) bonus depreciation — differently for each taxpayer type, and the two answers are not close.
Corporate: federal taxable income is computed as if §168(k) were not in effect at all (MCL 206.607(1)(a)-(b)) — zero state-level bonus, full stop. Individual: Michigan AGI is computed as if §168(k) applied as it stood on December 31, 2024 (MCL 206.30(1)(ff)) — the old TCJA phase-down rate, not the OBBBA-restored 100%.
On a representative Michigan 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, which Michigan does not match at the state level for either entity type.
Federal vs Michigan, Side by Side — By Entity Type
For cost-segregation-reclassified components, split by taxpayer type because Michigan's answer is not the same for both:
| Tax provision | Federal (IRC) | Michigan — Individual | Michigan — Corporate |
|---|---|---|---|
| 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 | Frozen at the 2024-12-31 rate (MCL 206.30(1)(ff)) — the pre-OBBBA phase-down, not 100% | Zero. Computed as if §168(k) were not in effect (MCL 206.607(1)(a)-(b)) |
| Other excluded provisions | Not applicable | §168(n) and §174A also treated as not in effect | §168(n) also excluded, alongside §168(k) |
| Is this active, maintained policy? | Not applicable | Yes. MCL 206.607 amended by 2025 Act 24, effective 2025-10-07, specifically in response to OBBBA | |
| Federal usability of the deduction | Subject to passive activity, at-risk, basis, and business-interest limits | Same federal limits govern the federal deduction; Michigan's exclusions apply independently by entity type | |
Sources: MCL 206.607 — corporate income tax base, MCL 206.30 — individual adjusted gross income, IRC §168(k). Federal bonus figures reflect current law; eligibility depends on acquisition and placed-in-service dates and elections.
Why the corporate and individual answers diverge — and why it matters this year
This is a live, actively maintained decoupling, not stale text — and any conformity summary written before late 2025 will likely still say Michigan conforms. MCL 206.607 was last amended by 2025 Act 24, effective October 7, 2025, specifically in response to OBBBA, and the statute directs the treasurer to modify federal references amended under Public Law 119-21 (OBBBA). The corporate exclusion is total: Michigan corporate income tax computes federal taxable income as if §168(k) were not in effect at all — before 2025 the same rule ran alongside §199, and it now also excludes §168(n) and §174A.
The individual rule, at MCL 206.30(1)(ff), is different in mechanism and outcome. For tax years beginning after December 31, 2024, Michigan AGI is computed as if §163(j), §168(k), §174, and §179 applied as they stood on December 31, 2024 — while treating §168(n) and §174A as not in effect. That freezes the individual at the pre-OBBBA TCJA phase-down percentage rather than excluding bonus depreciation entirely, so an individual does get some Michigan-recognized bonus — just not the restored 100% that OBBBA gives on the federal return for property placed in service after January 19, 2025.
A page, a CPA memo, or a client conversation that states one Michigan answer for both taxpayer types will be wrong for one of them. Establish which return you are preparing before citing a percentage.
Illustrative numbers: a Michigan single-family rental (individual owner)
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. This example assumes an individual owner; a corporate owner would see the Michigan column read "no state-level bonus" instead:
| Line item | Federal | Michigan (individual) |
|---|---|---|
| Purchase price band | $250,000–$650,000 | Same property |
| Depreciable basis (20% land allocation) | $200,000–$520,000 | Same basis before the rate freeze |
| Reclassified to 5/7/15-yr (9–32% of basis) | $18K–$165K | Recomputed at the 2024-12-31 phase-down rate, not 100% |
| Year-1 treatment | $18K–$165K deducted (100% bonus, if eligible) | Smaller Year-1 figure at the frozen rate; remainder on ordinary MACRS |
| Same property, corporate owner instead | Unchanged federally | Zero state-level bonus — §168(k) treated as not in effect |
| Illustrative Year-1 federal tax savings on reclassified components | ~$6,660–$61,570 (37% × $18K–$165K) | Reduced state-level acceleration; confirm the exact 2024-12-31 rate with your CPA |
Figures are illustrative and use the site's published SFR reclassification band; your result depends on your basis, land allocation, bracket, component mix, eligibility, and — in Michigan specifically — your entity type. Whether the full federal deduction is usable in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation.
See a sample cost segregation report
Look at exactly what your Michigan 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 Michigan property
For a Michigan taxpayer, the workflow must start by confirming entity type, since the state treatment diverges sharply from there:
- 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.
- Michigan individual return: AGI is recomputed under MCL 206.30(1)(ff) using the §168(k) rate as it stood on 2024-12-31, not the current federal rate.
- Michigan corporate return: federal taxable income is recomputed under MCL 206.607(1)(a)-(b) as if §168(k) were not in effect at all — no partial credit.
- 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 reclassified schedule is the same engineered output either way; which of the two Michigan recomputations applies depends entirely on the taxpayer's entity type.
Form 3115 lookback on a Michigan 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.
For Michigan, the same corporate-exclusion / individual-frozen-rate split described above governs the catch-up's state-side treatment — a corporate taxpayer gets no Michigan bonus benefit from the catch-up either, while an individual's catch-up is recomputed at the 2024-12-31 rate.
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 Michigan? Usually yes.
Michigan's decoupling reduces or eliminates the state-level bonus benefit depending on entity type — but the federal benefit, and the reclassification itself, still hold value:
- The full federal Year-1 bonus is unaffected by either Michigan rule. Both the corporate exclusion and the individual rate freeze apply only to the Michigan return. How much you use in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation.
- Confirm entity type before modeling the Michigan number. A corporation should not expect any Michigan-level bonus benefit; an individual should model the 2024-12-31 rate, not the current 100%.
- Reclassification still accelerates ordinary MACRS. Even where the Michigan bonus is reduced or zero, correctly sorting components into 5-, 7-, and 15-year property still front-loads Michigan depreciation relative to treating the whole building as 27.5- or 39-year real property.
The nuance to flag with your CPA is the entity-type split itself, and that Michigan's statute is under active amendment in response to federal law — confirm the current text before relying on a rate figure from an earlier tax year.
Frequently asked
Does Michigan allow bonus depreciation?
It depends entirely on whether you're asking about an individual or a corporation — and the two answers are not close. A corporation gets NO §168(k) bonus at all for Michigan purposes. An individual gets a bonus figure, but frozen at the rate §168(k) allowed as of December 31, 2024 — the pre-OBBBA phase-down percentage, not the OBBBA-restored 100%. Neither taxpayer type gets what the federal return shows for a property placed in service after OBBBA's January 19, 2025 effective date.
Why does Michigan treat corporations and individuals differently?
Because two separate statutory provisions govern them, and they were not amended the same way. MCL 206.607(1)(a)-(b) computes Michigan corporate income tax as if §168(k) were not in effect at all — a flat, total exclusion. MCL 206.30(1)(ff) computes individual adjusted gross income as if §168(k) (along with §163(j), §174, and §179) applied as it stood on December 31, 2024, which locks in the TCJA phase-down rate rather than following OBBBA's restoration to 100%. These are different mechanisms with different outcomes, not one rule read two ways.
Is Michigan's corporate treatment new, or has it always excluded bonus depreciation?
The corporate exclusion itself is not new, but the statute is under active, live maintenance: MCL 206.607 was most recently amended by 2025 Act 24, effective October 7, 2025, specifically in response to OBBBA — the statute directs the treasurer to modify federal references amended under Public Law 119-21 (OBBBA). This is not stale text; it is a state actively re-tuning its decoupling as federal law changes.
What rate does an individual actually get in Michigan for 2025-2026 property?
For tax years beginning after December 31, 2024, an individual's Michigan AGI is computed as if §168(k) applied as it stood on 2024-12-31 — the pre-OBBBA TCJA phase-down percentage in effect at that date, not the 100% OBBBA restored starting 2025-01-19. Also excluded from the individual computation: §168(n) and §174A, which are treated as not in effect. Confirm the exact 2024-12-31 phase-down percentage with your CPA before modeling a Michigan individual return.
Is cost segregation still worth it in Michigan?
Usually yes, and the answer differs meaningfully by entity type. For both individuals and corporations, the full federal §168(k) bonus (100% for qualified property placed in service after January 19, 2025, subject to eligibility and election rules) is unaffected on the federal return regardless of Michigan's rules. For a corporation, Michigan adds zero state-level benefit from bonus depreciation specifically — the reclassification still accelerates the ordinary MACRS schedule relative to no study, just without a state bonus figure. For an individual, Michigan credits only the frozen 2024-12-31 rate, not the current 100%. 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 Michigan 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 Michigan side, the same corporate-exclusion / individual-frozen-rate split described above governs how much of that catch-up carries a state benefit, and it should be modeled by entity type rather than assumed.
Related guides
- Bonus depreciation by state: overview
- All 50 states: conformity reference table
- Delaware bonus depreciation (decoupled, different dates by entity)
- Indiana bonus depreciation (decoupled since 2002)
- Ohio bonus depreciation (decoupled, 5/6 add-back)
- Form 3115 cost segregation lookback: §481(a) mechanics
- What is cost segregation: the full primer
- Sample cost segregation reports