Bonus depreciation in Virginia

The rule

Follows federal §168(k) bonus

No

Federal bonus added back in year one

100%

State §179 cap

$1,250,000

Full bonus add-back — Virginia has disallowed §168(k) since 2001 and Tax Bulletin 26-1 confirms it continues; depreciation is recomputed as if no bonus were claimed, with the difference taken as a fixed-date-conformity addition on Schedule ADJ in year one and recovered as a subtraction over the asset's remaining life. Two changes new for 2026 that matter here: Virginia replaced ROLLING conformity with a STATIC fixed date of December 31, 2025, and it now also deconforms from OBBBA's §179 increase and from §168(n) qualified production property. The $1,250,000 §179 cap shown is the pre-H.R.1 limit that Virginia's deconformity falls back to; the Department has not published its own indexed dollar figure for 2026, so confirm the exact number before relying on it.

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 Virginia return

$250,000

Virginia 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 Virginia allow bonus depreciation?

No — Virginia does not follow the federal bonus depreciation rules. 100% of the federal bonus deduction is added back to your Virginia 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. Full bonus add-back — Virginia has disallowed §168(k) since 2001 and Tax Bulletin 26-1 confirms it continues; depreciation is recomputed as if no bonus were claimed, with the difference taken as a fixed-date-conformity addition on Schedule ADJ in year one and recovered as a subtraction over the asset's remaining life. Two changes new for 2026 that matter here: Virginia replaced ROLLING conformity with a STATIC fixed date of December 31, 2025, and it now also deconforms from OBBBA's §179 increase and from §168(n) qualified production property. The $1,250,000 §179 cap shown is the pre-H.R.1 limit that Virginia's deconformity falls back to; the Department has not published its own indexed dollar figure for 2026, so confirm the exact number before relying on it.