Bonus depreciation in Vermont

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

100%

State §179 cap

Follows federal

Hard statutory decoupling, not a conformity-date lag: 32 V.S.A. §5811(21) defines Vermont taxable income as federal taxable income 'determined without regard to 26 U.S.C. §168(k)', so OBBBA cannot change it. 100% of the federal bonus is added back on Schedule IN-112 in year one, then recovered in later years as a subtraction equal to the excess of regular MACRS depreciation over the federal deduction — a timing difference, not a permanent loss. Act 164 of 2026 updated Vermont's conformity for TY2025 and additionally decoupled from §168(n) qualified production property, but left the §168(k) disallowance untouched. §179 is not decoupled and follows federal.

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 Vermont return

$250,000

Vermont 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 Vermont allow bonus depreciation?

No — Vermont does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Vermont 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. Hard statutory decoupling, not a conformity-date lag: 32 V.S.A. §5811(21) defines Vermont taxable income as federal taxable income 'determined without regard to 26 U.S.C. §168(k)', so OBBBA cannot change it. 100% of the federal bonus is added back on Schedule IN-112 in year one, then recovered in later years as a subtraction equal to the excess of regular MACRS depreciation over the federal deduction — a timing difference, not a permanent loss. Act 164 of 2026 updated Vermont's conformity for TY2025 and additionally decoupled from §168(n) qualified production property, but left the §168(k) disallowance untouched. §179 is not decoupled and follows federal.