Bonus depreciation in Minnesota

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

80%

State §179 cap

Follows federal

Decoupled: 80% of the federal §168(k) deduction is added back in year one on Schedule M1MB (Business Income Additions and Subtractions), and the taxpayer subtracts 20% of that addition in each of the next five tax years — so the deduction is deferred, not lost. Minnesota is a STATIC-conformity state; H.F. 2438 (Session Laws 2026, ch. 128) moved the IRC conformity date to May 1, 2026 and adopted OBBBA's permanent 100% bonus and the $2.5M §179 limit (both beginning TY2025), but deliberately kept the 80% addition. §179 therefore follows federal with no separate Minnesota cap (Minnesota's old six-year §179 subtraction schedule was repealed for property placed in service in 2020 and later). One carve-out that does not help a short-term rental: the addition does not apply to qualified production property. Note also that if loss limitation rules (passive activity, EBL, NOL) prevent the bonus from being deducted federally, the Minnesota addback is suspended and carried forward.

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 Minnesota return

$200,000

Minnesota 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 Minnesota allow bonus depreciation?

No — Minnesota does not follow the federal bonus depreciation rules. 80% of the federal bonus deduction is added back to your Minnesota taxable income in year one, so your state bill does not fall the way your federal bill does.

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. Decoupled: 80% of the federal §168(k) deduction is added back in year one on Schedule M1MB (Business Income Additions and Subtractions), and the taxpayer subtracts 20% of that addition in each of the next five tax years — so the deduction is deferred, not lost. Minnesota is a STATIC-conformity state; H.F. 2438 (Session Laws 2026, ch. 128) moved the IRC conformity date to May 1, 2026 and adopted OBBBA's permanent 100% bonus and the $2.5M §179 limit (both beginning TY2025), but deliberately kept the 80% addition. §179 therefore follows federal with no separate Minnesota cap (Minnesota's old six-year §179 subtraction schedule was repealed for property placed in service in 2020 and later). One carve-out that does not help a short-term rental: the addition does not apply to qualified production property. Note also that if loss limitation rules (passive activity, EBL, NOL) prevent the bonus from being deducted federally, the Minnesota addback is suspended and carried forward.