Bonus depreciation in Pennsylvania
No — Pennsylvania does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Pennsylvania taxable income in year one, so your state bill does not fall the way your federal bill does.
The rule
- Follows federal §168(k) bonus
- No
- Federal bonus added back in year one
- 100%
- State §179 cap
- Follows federal
No bonus at all, ever — and not as an add-back. PA personal income tax is a standalone scheme that does not start from federal AGI, so §168(k) simply never enters the calculation: "Bonus depreciation is not allowed for Pennsylvania personal income tax purposes" and "The federal elections for bonus depreciation do not apply." Depreciation runs under 72 P.S. § 7303(a.2) — straight-line or a department-prescribed method, or the federal method only if the property carries the same adjusted basis federally, which bonus destroys. Effect equals a 100% year-one add-back recovered over the normal life, plus a permanent PA/federal basis difference to carry to disposition. §179 now tracks the federal dollar limit for property placed in service in tax years beginning on or after Jan. 1, 2023 (Act 53 of 2022), so no state cap — but it requires business use, is limited to active PA business income, and has no carryforward, so a rental on PA Schedule E generally cannot use it. Watch the classification: PA moves rentals with significant services (common for STRs) off Schedule E into net profits on PA Schedule C.
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 Pennsylvania return
- $250,000
- Pennsylvania 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 Pennsylvania allow bonus depreciation?
- No — Pennsylvania does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Pennsylvania 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. No bonus at all, ever — and not as an add-back. PA personal income tax is a standalone scheme that does not start from federal AGI, so §168(k) simply never enters the calculation: "Bonus depreciation is not allowed for Pennsylvania personal income tax purposes" and "The federal elections for bonus depreciation do not apply." Depreciation runs under 72 P.S. § 7303(a.2) — straight-line or a department-prescribed method, or the federal method only if the property carries the same adjusted basis federally, which bonus destroys. Effect equals a 100% year-one add-back recovered over the normal life, plus a permanent PA/federal basis difference to carry to disposition. §179 now tracks the federal dollar limit for property placed in service in tax years beginning on or after Jan. 1, 2023 (Act 53 of 2022), so no state cap — but it requires business use, is limited to active PA business income, and has no carryforward, so a rental on PA Schedule E generally cannot use it. Watch the classification: PA moves rentals with significant services (common for STRs) off Schedule E into net profits on PA Schedule C.
Sources
- Pa. Dep't of Revenue, PA Personal Income Tax Guide — Net Income (Loss) from the Operation of a Business, Profession or Farm — Read directly: "Bonus depreciation is not allowed for Pennsylvania personal income tax purposes," and "The federal elections for bonus depreciation do not apply for Pennsylvania personal income tax purposes."
- Pa. Dep't of Revenue, PA Personal Income Tax Guide — Net Income (Loss) from Rents, Royalties, Copyrights and Patents, "Depreciation and IRC Section 179 Property Deductions" — The rental (PA Schedule E) chapter — extracted and read. It flags "significant differences between federal and Pennsylvania personal income tax depreciation rules" and routes the reader to the business chapter above for the operative rules. Also contains the "Significant Services" test that recl
- 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.