Ohio Bonus Depreciation: 5/6 Add-Back, No Corporate Tax to Reduce.

Federal vs Ohio, Side by Side

For an Ohio individual, estate, trust, or pass-through owner's cost-segregation-reclassified components:

Source: Ohio Rev. Code §5747.01(A)(17)-(18); IRC §168(k). Federal bonus figures reflect current law; eligibility depends on acquisition and placed-in-service dates and elections.

Why "Ohio corporate tax" is the wrong question for most owners

A summary of Ohio's bonus depreciation rule that only discusses corporate treatment is answering a question that mostly does not apply. Ohio has no traditional corporate net-income tax — it was replaced years ago by the Commercial Activity Tax (CAT), a tax levied on gross receipts rather than net income. A gross-receipts tax has no depreciation line at all, bonus or otherwise, so a cost segregation study — which works entirely by reclassifying and accelerating depreciation — cannot reduce CAT liability for any Ohio business, corporate or otherwise.

The rule that actually matters sits in Chapter 5747, Ohio's individual, estate, trust, and pass-through-owner income tax. It explicitly reaches a distributive share passed through from a pass-through entity — and because Ohio real estate is overwhelmingly held in an LLC or S-corp that flows income through to individual owners, the 5/6 add-back at §5747.01(A)(17) is, in practice, the Ohio-level rule that governs a cost segregation study for the great majority of readers of this page, regardless of what kind of entity technically holds title.

This page's previous citation to §5751 was wrong — that section is the Commercial Activity Tax itself, not the depreciation add-back. The correct citation is §5747.01(A)(17)-(18).

How the 5/6 add-back and five-year recovery work

The study itself does not change. The same engineering-based reclassification, using nationally-recognized construction cost data, MACRS classification per Rev. Proc. 87-56, and IRS Pub 5653 ATG-aligned documentation, produces the same component schedule whether the property sits in Ohio or anywhere else. What changes is what happens on the Ohio return: five-sixths of the federal §168(k) deduction is added back in Year 1, under §5747.01(A)(17).

Section (A)(18) brings the delayed amount back as a one-fifth deduction in each of the five following tax years — so a taxpayer who adds back 5/6 in Year 1 recovers that same 5/6 in five equal installments across Years 2 through 6. Alternate recovery schedules exist in the same subsection: half of the addition over two years, or the full amount recovered over six years, and treatment differs where the bonus depreciation created or increased a federal net operating loss — all worth confirming with your CPA against your specific facts.

Your CPA receives the same Cost Seg Smart engineered report, the same Form 4562-ready federal schedule, and the same Form 3115 §481(a) section if this is a lookback study. The Ohio 5/6 addition and its five-year recovery are then computed from that same schedule and carried through the distributive share if the property is held in a pass-through entity.

Illustrative numbers: an Ohio 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. The Ohio column is described qualitatively because the standard 5/6-then-1/5-per-year schedule has alternate options under the statute:

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 entity structure. Whether the full federal deduction is usable in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation. Confirm with your CPA whether the standard 5/6-then-1/5 schedule or one of the alternate recovery options applies to your facts.

Forms your CPA files for an Ohio property

For an Ohio investor, the workflow runs on both the federal return and the Ohio individual return, because Ohio's 5/6 addition and five-year recovery mechanism has to be tracked over multiple years — regardless of whether title sits with an individual or a pass-through entity:

1. Federal Form 4562: depreciation and amortization, including the §168(k) bonus deduction on eligible reclassified components. Flows to Schedule E (rental) or Schedule C (active business), or the entity's federal return with a K-1 passed through.
2. Schedule E (or Schedule C, or the K-1): the accelerated federal deduction reduces federal taxable income in Year 1, subject to the federal passive-loss, at-risk, basis, and business-interest limits.
3. Ohio individual income tax return: 5/6 of the federal §168(k) deduction is added back, per Ohio Rev. Code §5747.01(A)(17) — including the distributive share if the property is held through a pass-through entity.
4. One-fifth deductions in each of the next five tax years: Ohio recovers the added-back amount over five years, per §5747.01(A)(18) — this has to be tracked on the Ohio return until fully recovered.
5. 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 for both books; the difference is that federal claims the Year-1 bonus while Ohio adds back 5/6 in Year 1 and recovers it through five annual one-fifth deductions afterward, on the individual return.

Form 3115 lookback on an Ohio 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 it remains subject to the federal passive-loss, at-risk, and basis limits. For Ohio, the catch-up year's bonus-eligible amount is added back at 5/6 the same way an ordinary Year-1 bonus would be, and recovered through one-fifth deductions in each of the following five years, per §5747.01(A)(18).

See our full Form 3115 cost segregation guide for federal mechanics, partnership and LLC pass-through treatment, and timing rules.

Should you skip cost segregation in Ohio? No.

Ohio's 5/6 add-back changes the timing of the individual-level benefit; it does not eliminate it, and it has no bearing on the CAT question at all:

1. The full federal Year-1 bonus is intact. Ohio does not reduce the federal deduction; the full §168(k) bonus is claimed on the federal return. How much you use in the current year still depends on your passive-loss, at-risk, basis, and business-interest situation.
2. Ohio defers 5/6 of the individual-level benefit, it does not eliminate it. The add-back in Year 1 is followed by one-fifth deductions in each of the next five tax years (§5747.01(A)(18)), so the same reclassified deduction is fully recovered on the Ohio return over six years.
3. Do not model an Ohio corporate-tax benefit that does not exist. The CAT allows no depreciation deduction, so there is nothing for the study to reduce there — the individual-level Chapter 5747 treatment is the whole Ohio story for a pass-through-held property.

The nuance to flag with your CPA is that Ohio's mechanism runs over six years on the individual return — the first-year 5/6 add-back and the five annual one-fifth deductions that follow both need to be tracked — and to confirm the entity structure so the right chapter of Ohio law is applied from the start.

Frequently asked

Related guides

• Bonus depreciation by state: overview
• All 50 states: conformity reference table
• Minnesota bonus depreciation (decoupled, 80% add-back)
• Illinois bonus depreciation (decoupled, 100% 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