Illinois fully conforms to federal §168(k) — STR investors get 100% of the federal bonus depreciation on the Illinois return with no add-back. The IL-4562 modification applies only to lower federal bonus percentages (30/40/50/60/80%), so with OBBBA's permanent 100% bonus for property acquired and placed in service after January 19, 2025, no Illinois adjustment is required. Federal and state savings stack. For side-by-side context, the 50-state §168(k) conformity overview shows how Illinois stacks up against every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Run your own numbers in the Conformity Tool →
How Illinois adopts §168(k) — the rolling conformity mechanic
Illinois conforms to the Internal Revenue Code on a rolling basis for individual income tax purposes. That means when federal law changes — as it did when the One Big Beautiful Bill Act (OBBBA, P.L. 119-21) restored 100% bonus depreciation permanently for property acquired and placed in service after January 19, 2025 — Illinois automatically adopts the new federal treatment without needing separate state legislation.
The one Illinois-specific wrinkle is the IL-4562 add-back rule at 35 ILCS 5/203(b)(2)(E-10). This modification requires Illinois taxpayers to add back the difference between federal depreciation with bonus and depreciation without bonus — but only when the federal bonus percentage is 30%, 40%, 50%, 60%, or 80%. It does not apply to 100% bonus. Because OBBBA sets the bonus rate at 100% for STR property acquired and placed in service after January 19, 2025, Illinois taxpayers claim the full deduction with no state modification.
This is a common misconception in tax circles — many practitioners assume Illinois is decoupled because of the IL-4562 form. The statute is specific: only lower percentages trigger the add-back.
Worked example — $150,000 federal deduction plus extra Illinois savings
Consider an Illinois STR investor with a $150,000 Year-1 §168(k) deduction on a short-term rental property acquired and placed in service after January 19, 2025. Assume the investor is in the 37% federal bracket and pays Illinois's 4.95% flat individual income tax.
| Line | Amount | Notes |
|---|---|---|
| Federal §168(k) deduction | $150,000 | OBBBA 100% bonus |
| Federal Y1 tax savings @ 37% | $55,500 | Ordinary bracket |
| Illinois state deduction | $150,000 | Full conformity, no add-back |
| Illinois Y1 state tax savings @ 4.95% | $7,425 | Flat rate |
| Total Year-1 combined savings | $62,925 | Federal + Illinois |
The Illinois deduction is the same $150,000 as federal — no basis differences, no separate depreciation schedule, no recapture reconciliation on sale. That simplicity is a real practical advantage over decoupled states.
The statute explained
The controlling Illinois authority is 35 ILCS 5/203(b)(2)(E-10), which defines the bonus depreciation modification for individual income tax purposes. The statute limits the add-back to specific bonus percentages (30/40/50/60/80%) and excludes 100% bonus by design. The Illinois Department of Revenue's IL-4562 instructions confirm this treatment.
How Illinois compares to decoupled states
The contrast is stark. In California, an STR investor with the same $150,000 federal deduction adds back the entire amount on the state return — giving up roughly $19,950 in Year-1 state tax savings at California's 13.3% top marginal rate. Georgia, New York, Pennsylvania, and about two dozen other states impose similar 100% add-backs.
Illinois investors face none of that. The federal deduction flows through unchanged, and the extra $7,425 in state savings stacks on top of the federal $55,500. To model an Illinois property against any decoupled state at any deduction amount, use the state conformity tool.
What this means for your STR purchase decision
Illinois's full conformity is a real underwriting advantage. When you're evaluating a Chicago, suburban, or downstate STR purchase, you can price in both federal and state Year-1 tax savings at underwriting — not just the federal deduction. On a mid-sized property with $150,000 in bonus-eligible components, that's an extra $7,425 in first-year cash flow.
The catch: the property must be acquired and placed in service after January 19, 2025 to qualify for OBBBA's 100% federal bonus. Pre-January 19, 2025 acquisitions fall under the pre-OBBBA phaseout schedule (60% for 2024, 40% for 2025 pre-OBBBA), and Illinois's IL-4562 add-back would apply to those lower percentages.
Before you make an offer, run the address on your property to see the calibrated Year-1 bonus-eligible dollar amount — DepreciMax reports classify every finish as 5-year, 15-year, or 39-year and quantify the federal plus Illinois state savings.
Analyze a specific Illinois property
Run any Illinois STR listing through DepreciMax's $99 property report — line-item finish classification with Illinois-specific state impact math.
Frequently asked questions
Do I get bonus depreciation on both my federal and Illinois return?
Yes. Illinois is NOT decoupled from 100% federal §168(k) bonus depreciation. Under 35 ILCS 5/203(b)(2)(E-10), the Illinois IL-4562 add-back applies only to lower federal bonus percentages (30/40/50/60/80%). Because OBBBA restored 100% bonus permanently for property acquired and placed in service after January 19, 2025, no Illinois add-back is required — you claim the full federal deduction and it flows through to Illinois.
What is Illinois's individual income tax rate?
Illinois has a flat 4.95% individual income tax rate. On a $150,000 federal §168(k) deduction, an Illinois STR investor picks up an additional $7,425 in Year-1 state tax savings on top of the federal deduction.
Does Illinois plan to change its §168(k) conformity in 2026?
No public legislation is pending to change 35 ILCS 5/203(b)(2)(E-10) for 2026. The IL-4562 add-back would only re-activate if federal §168(k) drops below 100% in a future year. As long as OBBBA's permanent 100% bonus is in force, Illinois taxpayers claim the deduction on the state return with no adjustment.
What happens on sale — does Illinois recapture bonus depreciation?
Because Illinois follows federal basis when 100% bonus is fully allowed at the state level, there is no separate Illinois recapture calculation for §168(k). Depreciation recapture on sale is computed under federal §1245 / §1250 and flows through to Illinois taxable income unchanged.
Does Illinois conformity apply to §179 as well?
Yes. Illinois generally conforms to federal §179 expensing without a separate state cap. STR investors can layer §179 (for qualifying tangible personal property) on top of §168(k) at both the federal and Illinois levels, subject to federal §179 income limits.
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 →