Arkansas does not conform to federal §168(k) — 100% of your federal bonus depreciation must be added back on the Arkansas state return. The federal deduction is unaffected; on the Arkansas side you recover the timing difference through standard MACRS depreciation over the property's 5/15/27.5-year life. Visit the full state conformity hub to compare Arkansas's treatment to every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction.
How Arkansas Treats §168(k) — The Add-Back Mechanic
Arkansas has never adopted §168(k) bonus depreciation. Under Ark. Code Ann. §26-51-428, Arkansas conforms to IRC §§167 and 168(a) through (j) as in effect January 1, 2019 and explicitly excludes §168(k). Every subsequent federal expansion of bonus depreciation — including the OBBBA restoration of 100% bonus for property placed in service after January 19, 2025 — falls outside Arkansas's conformity.
Mechanically, the STR investor claims the full federal §168(k) bonus on Schedule E of the federal return, then makes an addition modification on the Arkansas return equal to the difference between the federal depreciation (with bonus) and the Arkansas depreciation (without bonus, computed under IRC §§167 and 168(a)-(j)). The result: no Year-1 bonus for Arkansas purposes; instead, the same $150,000 is recovered over the property's normal MACRS life.
The Arkansas Department of Finance and Administration publishes the mechanics in the 2025 AR1100ADJ instructions. Individuals with rental activity report on the individual return's Schedule for Other Additions and Subtractions.
Worked Example — $150,000 Federal Deduction on an Arkansas STR
Assume an STR investor buys a Hot Springs cabin, closes 2026, and identifies $150,000 in bonus-eligible 5-year and 15-year assets through a cost-segregation-quality report.
| Line | Federal | Arkansas |
|---|---|---|
| Year 1 §168(k) deduction (bonus-eligible portion) | $150,000 | $0 (100% add-back) |
| Year 1 tax savings @ 37% federal / 3.90% AR top | $55,500 | $0 |
| Year 1 Arkansas MACRS recovery (approx.) | — | ~$16,900 (blended 5/15/27.5-yr MACRS) |
| Years 2 through end of asset life — AR subtraction modification | — | Remaining ~$133,100 recovered ratably |
The Year-1 Arkansas miss is roughly $5,850 in state tax that would have been saved had Arkansas conformed ($150,000 × 3.90% top marginal rate). That timing loss reverses as Arkansas depreciation exceeds federal in later years — but the up-front hit is real, and it should be baked into the STR investor's after-tax return model before writing an offer. run the address on your property to see the combined federal-and-state math.
The Statute Explained
Arkansas uses fixed-date IRC conformity for depreciation. Ark. Code Ann. §26-51-428 pegs Arkansas depreciation to IRC §§167 and 168(a)-(j) as in effect January 1, 2019 and specifically excludes §168(k). This is different from rolling-conformity states, which automatically adopt each federal amendment; and different from states like Idaho or Arizona that have rolling conformity with a narrow §168(k) carve-out. In Arkansas, the entire depreciation regime is frozen at a 2019 snapshot, and §168(k) has never been part of it since the state's original enactment.
Because the exclusion is statutory and permanent, OBBBA's restoration of 100% bonus for property acquired and placed in service after January 19, 2025 does not affect Arkansas treatment. The Arkansas legislature would need to affirmatively amend §26-51-428 to conform.
How Arkansas Compares to Federal-Conforming States
Roughly half the country conforms to federal §168(k) via rolling IRC conformity. In a full conformer like Colorado (4.4% flat) or Alabama (5.0% top marginal), the same $150,000 federal bonus produces $6,600 or $7,500 in additional Year-1 state tax savings on top of the federal $55,500 — a meaningful stacking benefit that Arkansas STR investors simply don't get.
Compared to other decoupled states, Arkansas sits in the middle of the pack on dollar impact: smaller than California (~$19,950 miss at 13.3%) or Hawaii (~$16,500 at 11%), but larger than Arizona (~$3,750 at 2.5%) or Indiana (~$4,425 at 2.95%). Contrast the mechanics against how Georgia does it, or use the state conformity tool to run Arkansas side-by-side with any other state at any federal deduction amount.
What This Means for Your STR Purchase Decision
For an STR investor evaluating a Hot Springs, Eureka Springs, or Bentonville property, Arkansas's non-conformity is a real but manageable state-timing hit. Two takeaways:
First, the federal Year-1 bonus deduction remains the dominant tax number — Arkansas takes nothing away from the federal $55,500 in Year-1 savings on a $150,000 bonus. Second, you'll want to run the Arkansas timing model separately in your after-tax return: the ~$5,850 Year-1 miss reverses over the asset's life, but the deferral has a real time value.
Before writing an offer on any Arkansas STR placed in service after January 19, 2025, model the federal bonus and the Arkansas add-back together. Run the address on your property to get a line-item breakdown before committing.
Analyze a specific Arkansas property
Run any Arkansas STR listing through DepreciMax's $99 property report — line-item finish classification closely calibrated to a formal cost seg study, includes Arkansas-specific add-back math.
Frequently Asked Questions
Does Arkansas plan to conform to §168(k) in 2026?
No. Arkansas conforms to IRC §§167 and 168(a)-(j) as in effect January 1, 2019 and explicitly excludes §168(k). No 2026 legislation has been introduced to update the depreciation conformity date.
Can I still take federal bonus depreciation if I live in Arkansas?
Yes. The federal §168(k) deduction is unaffected. An Arkansas resident STR investor placing a property in service after January 19, 2025 can claim the full 100% federal bonus deduction under OBBBA (P.L. 119-21). Arkansas only changes the state return.
How do I report the Arkansas §168(k) add-back?
Arkansas taxpayers make an add-back adjustment on Schedule AR1100ADJ and take Arkansas depreciation computed under IRC §§167 and 168(a)-(j) as in effect January 1, 2019. The 2025 AR1100ADJ instructions from the Arkansas Department of Finance and Administration explain the mechanics.
What happens on sale — does Arkansas recapture the difference?
Arkansas basis is higher than federal basis by the unrecovered add-back amount. On sale, Arkansas gain is correspondingly smaller than federal gain, so the state timing difference reverses through subtractions across the depreciation period and, if not fully absorbed, through a lower Arkansas gain at disposition.
Does Arkansas's decoupling apply to §179 too?
No. Arkansas adopts §179 expensing but at frozen January 1, 2019 IRC dollar limits. The bonus depreciation add-back under Ark. Code Ann. §26-51-428 is a separate, permanent statutory exclusion of §168(k) specifically.
Every state's §168(k) position, in one place
Interactive map, sortable table, and deep-dive guide for each of the 51 jurisdictions — post-OBBBA verified.
See the 50-state map →Arkansas statute: Ark. Code Ann. §26-51-428; Arkansas Department of Finance and Administration AR1100ADJ Instructions 2025 (dfa.arkansas.gov). Federal authority: IRC §168(k), as amended by the One Big Beautiful Bill Act (P.L. 119-21) restoring 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Nothing in this article is tax advice. Consult a CPA who specializes in real estate before making investment decisions based on state-conformity projections.