Bonus depreciation in New Jersey

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

100%

State §179 cap

$25,000

Full decoupling — New Jersey Gross Income Tax allows NO federal §168(k) bonus depreciation, so OBBBA's permanent 100% bonus buys an STR owner nothing on the NJ-1040. §179 is capped at $25,000, with no business-income limitation and no carryforward of unused amounts. The disallowed bonus is deferred, not lost: NJ basis (federal basis less the NJ §179 amount) is depreciated using the same method and life used federally, recovering the difference over the asset's life, with a year-of-disposition true-up to NJ gain or loss. For a Schedule E rental the adjustment is computed on Worksheet GIT-DEP and carried to NJ-1040, NJ-BUS-1 Part IV (rents, royalties, patents and copyrights); the disposition piece goes to NJ-1040 Schedule B. Static conformity: NJ fixes §179 to the IRC in effect Dec. 31, 2002, so federal cap increases never flow through. One legacy quirk: the old 30% allowance is still technically allowed where it applies, but that only ever covered property acquired Sept. 2001–May 2003, so a 2026 STR asset gets a 100% add-back.

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 New Jersey return

$250,000

§179 over the state cap, added back

$25,000

New Jersey 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 New Jersey allow bonus depreciation?

No — New Jersey does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your New Jersey 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 decoupling — New Jersey Gross Income Tax allows NO federal §168(k) bonus depreciation, so OBBBA's permanent 100% bonus buys an STR owner nothing on the NJ-1040. §179 is capped at $25,000, with no business-income limitation and no carryforward of unused amounts. The disallowed bonus is deferred, not lost: NJ basis (federal basis less the NJ §179 amount) is depreciated using the same method and life used federally, recovering the difference over the asset's life, with a year-of-disposition true-up to NJ gain or loss. For a Schedule E rental the adjustment is computed on Worksheet GIT-DEP and carried to NJ-1040, NJ-BUS-1 Part IV (rents, royalties, patents and copyrights); the disposition piece goes to NJ-1040 Schedule B. Static conformity: NJ fixes §179 to the IRC in effect Dec. 31, 2002, so federal cap increases never flow through. One legacy quirk: the old 30% allowance is still technically allowed where it applies, but that only ever covered property acquired Sept. 2001–May 2003, so a 2026 STR asset gets a 100% add-back.