Bonus depreciation in Maryland
No — Maryland does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Maryland 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 $25,000, below the federal limit.
The rule
- Follows federal §168(k) bonus
- No
- Federal bonus added back in year one
- 100%
- State §179 cap
- $25,000
Full bonus add-back. Maryland Form 500DM lists the federal Special Depreciation Allowance as a 'Decoupled Provision' and disallows it entirely; the taxpayer prepares a pro forma federal return without the decoupled provisions, and the year-one difference is an addition, with the disallowed basis recovered in later years as subtraction modifications (Form 500DM is reused each year and flips negative once state depreciation exceeds federal). This applies to individuals, not just corporations — the Part A code table carries rows for Form 502 (resident) and 505 (nonresident), coded to 'Other Additions'/'Other Subtractions'. Section 179 is capped at $25,000, reduced dollar-for-dollar above $200,000 of §179 property, for tax years beginning on or after 1/1/2003. Maryland has also decoupled from OBBB's §168(n) qualified production property allowance (Form 500DM line 7) and §174A R&E full expensing (line 5).
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 Maryland return
- $250,000
- §179 over the state cap, added back
- $25,000
- Maryland taxable income is higher by
- $275,000
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 Maryland allow bonus depreciation?
- No — Maryland does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Maryland 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 $25,000, 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. Full bonus add-back. Maryland Form 500DM lists the federal Special Depreciation Allowance as a 'Decoupled Provision' and disallows it entirely; the taxpayer prepares a pro forma federal return without the decoupled provisions, and the year-one difference is an addition, with the disallowed basis recovered in later years as subtraction modifications (Form 500DM is reused each year and flips negative once state depreciation exceeds federal). This applies to individuals, not just corporations — the Part A code table carries rows for Form 502 (resident) and 505 (nonresident), coded to 'Other Additions'/'Other Subtractions'. Section 179 is capped at $25,000, reduced dollar-for-dollar above $200,000 of §179 property, for tax years beginning on or after 1/1/2003. Maryland has also decoupled from OBBB's §168(n) qualified production property allowance (Form 500DM line 7) and §174A R&E full expensing (line 5).
Sources
- Maryland Form 500DM (2025), COM/RAD-24 10/25, 'Decoupled Provisions' bullet list — Read directly. Decoupled provisions include 'Special Depreciation Allowance under the federal Job Creation and Worker Assistance Act of 2002 (JCWAA) as increased and extended under the federal Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA); and subsequent federal legislation, includi
- Maryland Form 500DM (2025), 'Decoupled Provisions,' Section 179 bullet — Read directly. 'For Maryland tax purposes, a taxpayer only is allowed to expense up to $25,000, reduced dollar-for-dollar by the amount over $200,000, of the cost of Section 179 property that is purchased and put in service for a trade or business for the tax year' — for tax years beginning on or af
- 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.