Bonus depreciation in Arkansas
No — Arkansas does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Arkansas taxable income in year one, so your state bill does not fall the way your federal bill does. It also caps Section 179 expensing at $1,250,000, below the federal limit.
The rule
- Follows federal §168(k) bonus
- No
- Federal bonus added back in year one
- 100%
- State §179 cap
- $1,250,000
Arkansas allows NO bonus depreciation — full year-one add-back. It adopts IRC §§167 and 168(a)–(j) as in effect January 1, 2019 and expressly omits §168(k), so this is not a deferral schedule with a scheduled recovery: the disallowed amount simply stays in Arkansas basis and recovers over the ordinary MACRS life (27.5-yr residential shell, 5/7/15-yr cost-seg components) on a separate Arkansas depreciation schedule. §179 is frozen at the January 1, 2022 version — $1,250,000 cap / $3,130,000 phaseout for TY2025, indexed off the pre-OBBBA $1M base — so Arkansas does not get OBBBA's $2.5M. The TY2026 Arkansas §179 figure will be the further-indexed pre-OBBBA amount (above $1.25M) and has not been confirmed in a published DFA source.
What that costs, worked
Take a cost-segregation study that produces $250,000 of federal bonus depreciation and $50,000 of §179 in the first year — a realistic result on a single short-term rental.
- Federal bonus depreciation
- $250,000
- Added back on the Arkansas return
- $250,000
- Arkansas taxable income is higher by
- $250,000
A year-one figure. The state-side recovery of the added-back amount in later years is a separate schedule and is not modelled here.
Where this sits in the year
State conformity is the last thing that happens to a deduction, not the first. Before it matters, the property has to clear the seven-day average-stay test and the material participation tests, and the loss has to survive basis, at-risk, and the §461(l) cap — $256,000 single and $512,000 married filing jointly for 2026. The path is laid out in does my short-term rental qualify.
Common questions
- Does Arkansas allow bonus depreciation?
- No — Arkansas does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Arkansas taxable income in year one, so your state bill does not fall the way your federal bill does. It also caps Section 179 expensing at $1,250,000, below the federal limit.
- Does this change my federal deduction?
- No. State conformity affects only your state return. The federal bonus deduction is unchanged — which is why a cost-segregation study can still be worth doing in a state that decouples, just for a smaller total benefit.
- Is the added-back amount lost?
- Not usually. States that require an add-back generally let you recover the amount through ordinary depreciation on the state's own schedule in later years. Arkansas allows NO bonus depreciation — full year-one add-back. It adopts IRC §§167 and 168(a)–(j) as in effect January 1, 2019 and expressly omits §168(k), so this is not a deferral schedule with a scheduled recovery: the disallowed amount simply stays in Arkansas basis and recovers over the ordinary MACRS life (27.5-yr residential shell, 5/7/15-yr cost-seg components) on a separate Arkansas depreciation schedule. §179 is frozen at the January 1, 2022 version — $1,250,000 cap / $3,130,000 phaseout for TY2025, indexed off the pre-OBBBA $1M base — so Arkansas does not get OBBBA's $2.5M. The TY2026 Arkansas §179 figure will be the further-indexed pre-OBBBA amount (above $1.25M) and has not been confirmed in a published DFA source.
Sources
- Ark. Code Ann. §26-51-428, as stated in Arkansas DFA, 2025 Sub-Chapter S Corporation Income Tax Instructions, Line 20 – Depreciation — Verbatim: "ACA 26-51-428 does not adopt the bonus depreciation provisions contained in Internal Revenue Code 168(k). For Arkansas income tax purposes, Internal Revenue Code Sections 167 and 168 (a) – (j) as in effect on January 1, 2019 is adopted for tax years beginning on or after January 1, 2019.
- Arkansas DFA, Corporation Income Tax — Corporate FAQs (dfa.arkansas.gov) — "No bonus depreciation is allowed for Arkansas income tax purposes."
- docs/05-tax-reference.md §6 — state conformity shifts yearly — a maintained feed re-checked against current DOR guidance, not a fixed fact
- docs/05a-tax-deep-dive.md §R — year-one add-back signal only; the state-side recovery schedule (state depreciation on the added-back basis) is deferred to the depreciation engine
State conformity shifts from year to year. These figures are maintained against current Department of Revenue guidance, and the citation above is what they were checked against — verify before relying on them for a filing. Model your own year.