Bonus depreciation in Michigan

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

80%

State §179 cap

$1,250,000

Effectively a PARTIAL decoupler as of 2026, and this changed very recently — Michigan was a conforming state before. HB 4961 (Public Act 24 of 2025) froze the individual income tax to the IRC in effect 12/31/2024 for tax years beginning after 12/31/2024, so only the PRE-OBBBA bonus rate is allowed: 40% for 2025, 20% for 2026, 0% for 2027. Federal gives 100%, so for a 2026 placed-in-service cost segregation the year-one add-back is 80% of the federal bonus, reported on MI-1040 Schedule 1, and the disallowed amount is then recovered annually as the depreciation that would have been allowed under pre-OBBBA law. That becomes a full 100% add-back in 2027. Michigan also decoupled from §168(n) and §174A. Section 179 is held at pre-OBBBA limits rather than OBBBA's $2.5M; the $1,250,000 figure given is the pre-OBBBA 2025 statutory limit — the 2026 pre-OBBBA-indexed amount (roughly $1.28M) was NOT verified. Both michigan.gov (HTTP 403) and legislature.mi.gov (connection refused) blocked automated retrieval, so no primary source was actually read; verify against the Treasury notice and the 2025 MI-1040 Schedule 1 instructions before relying on this row.

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 Michigan return

$200,000

Michigan taxable income is higher by

$200,000

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 Michigan allow bonus depreciation?

No — Michigan does not follow the federal bonus depreciation rules. 80% of the federal bonus deduction is added back to your Michigan 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. Effectively a PARTIAL decoupler as of 2026, and this changed very recently — Michigan was a conforming state before. HB 4961 (Public Act 24 of 2025) froze the individual income tax to the IRC in effect 12/31/2024 for tax years beginning after 12/31/2024, so only the PRE-OBBBA bonus rate is allowed: 40% for 2025, 20% for 2026, 0% for 2027. Federal gives 100%, so for a 2026 placed-in-service cost segregation the year-one add-back is 80% of the federal bonus, reported on MI-1040 Schedule 1, and the disallowed amount is then recovered annually as the depreciation that would have been allowed under pre-OBBBA law. That becomes a full 100% add-back in 2027. Michigan also decoupled from §168(n) and §174A. Section 179 is held at pre-OBBBA limits rather than OBBBA's $2.5M; the $1,250,000 figure given is the pre-OBBBA 2025 statutory limit — the 2026 pre-OBBBA-indexed amount (roughly $1.28M) was NOT verified. Both michigan.gov (HTTP 403) and legislature.mi.gov (connection refused) blocked automated retrieval, so no primary source was actually read; verify against the Treasury notice and the 2025 MI-1040 Schedule 1 instructions before relying on this row.