Maryland does not conform to federal §168(k) — 100% of your federal bonus depreciation must be added back on the Maryland state return. The federal deduction is unaffected; on the Maryland side you recover the timing difference through standard MACRS depreciation over the property's 5/15/27.5-year life. A narrow manufacturing exception exists but does not apply to short-term rental real estate. Cross-reference our all-50-states conformity guide to see how Maryland lines up against every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Maryland's local piggyback income tax (roughly 2.5% at the top) adds another ~$3,750 to the timing loss.
How Maryland Treats §168(k) — The Add-Back Mechanic
Maryland has been decoupled from federal §168(k) bonus depreciation since 2002. Under Md. Code Ann. Tax-Gen. §10-210.1, Maryland requires a 100% add-back of federal bonus depreciation, reported on Form 500DM (Decoupling Modification). Maryland depreciation is then computed without §168(k) and taken as a subtraction over the property's normal MACRS life on the same Form 500DM.
Maryland has one narrow carve-out: certain manufacturing property can qualify for §168(k) even for Maryland purposes. STR real estate does not qualify for this exception — the manufacturing carve-out is narrowly targeted at qualified production property and does not extend to residential rental real estate used for short-term stays.
There's also a meaningful local-tax wrinkle unique to Maryland. Every Maryland county (and Baltimore City) levies its own individual income tax on top of the state rate. The local piggyback rate ranges roughly 2.25% to 3.20% and applies to Maryland taxable income after the §168(k) add-back. So an STR investor in a top-rate county effectively faces a 6.5% state rate plus roughly 2.5% local — total ~9% on the added-back bonus deduction.
Worked Example — $150,000 Federal Deduction on a Maryland STR
Assume an STR investor buys an Ocean City beach condo, closes 2026, and identifies $150,000 in bonus-eligible 5-year and 15-year assets through a cost-segregation-quality report.
| Line | Federal | Maryland (state + local) |
|---|---|---|
| Year 1 §168(k) deduction (bonus-eligible portion) | $150,000 | $0 (100% add-back on Form 500DM) |
| Year 1 tax savings @ 37% federal / 6.50% MD state | $55,500 | $0 |
| Year 1 Maryland state miss (6.50%) | — | ~$9,750 |
| Year 1 Maryland local piggyback miss (~2.50%) | — | ~$3,750 |
| Total Year-1 Maryland timing loss | — | ~$13,500 combined state + local |
| Years 2 through end of asset life — MD subtraction modification | — | Remaining ~$133,100 recovered ratably |
The Year-1 Maryland state miss is roughly $9,750, plus another ~$3,750 in local piggyback income tax for a total ~$13,500 combined. That timing loss reverses over the property's MACRS life as Maryland depreciation exceeds federal in later years. Pre-purchase, you can run the address on your property to see the combined federal-and-state-and-local after-tax cash flow.
The Statute Explained
Maryland uses rolling IRC conformity generally, but §168(k) is carved out by statute. Md. Code Ann. Tax-Gen. §10-210.1 requires the add-back and authorizes the subtraction modification on Form 500DM. This structure — rolling conformity with a §168(k) carve-out — is the same architecture used by Arizona, Idaho, and Massachusetts, though Maryland's carve-out includes the narrow manufacturing exception that the others don't.
Because the exclusion is statutory and permanent, OBBBA's restoration of 100% federal bonus for property acquired and placed in service after January 19, 2025 does not change the Maryland treatment. The Maryland General Assembly would need to affirmatively amend §10-210.1 to conform.
How Maryland 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 savings on top of the federal $55,500. Maryland STR investors don't get that stacking benefit, and the local piggyback layer pushes the timing loss higher than most decoupled states with similar headline rates.
Compared to other decoupled states, Maryland's combined state-plus-local hit (~$13,500 on a $150,000 bonus) is meaningful but still below Hawaii (~$16,500 at 11%) or California (~$19,950 at 13.3%). Contrast against how New Jersey does it, or use the state conformity tool to run Maryland 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 an Ocean City, Deep Creek Lake, or Annapolis property, Maryland's non-conformity — combined with the local piggyback layer — is a real state-timing hit. Two takeaways:
First, the federal Year-1 bonus deduction remains the largest tax number by far — Maryland takes nothing away from the federal $55,500 in Year-1 savings on a $150,000 bonus. Second, the Maryland state-plus-local timing loss (~$13,500 combined in Year 1) is material and should be baked into your after-tax return model. The local rate varies materially by county, so use your actual county rate rather than a state-level estimate.
Before writing an offer on any Maryland STR placed in service after January 19, 2025, run the address on your property to get a line-item breakdown before committing.
Analyze a specific Maryland property
Run any Maryland STR listing through DepreciMax's $99 property report — line-item finish classification closely calibrated to a formal cost seg study, includes Maryland-specific state and local piggyback add-back math.
Frequently Asked Questions
Does Maryland plan to conform to §168(k) in 2026?
No. Maryland has statutorily decoupled from federal §168(k) since 2002 under Md. Code Ann. Tax-Gen. §10-210.1. No 2026 legislation has been introduced to conform. A narrow exception exists for certain manufacturing property, but STR real estate does not qualify.
Can I still take federal bonus depreciation if I live in Maryland?
Yes. The federal §168(k) deduction is unaffected. A Maryland 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). Maryland only changes the state-return calculation.
How do I report the Maryland §168(k) add-back?
Maryland taxpayers file Form 500DM (Decoupling Modification) with the state return to add back federal §168(k) bonus depreciation. Maryland depreciation is then computed without bonus and recovered via subtraction modification on Form 500DM over the property's normal MACRS life.
What happens on sale — does Maryland recapture the difference?
Maryland basis is higher than federal basis by the unrecovered add-back amount. On sale, Maryland 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 Maryland gain at disposition.
Does Maryland's decoupling apply to §179 too?
Maryland conforms to federal §179 expensing at the federal dollar limit. The §168(k) decoupling under Md. Code Ann. Tax-Gen. §10-210.1 is separate and specific to bonus depreciation.
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 →Maryland statute: Md. Code Ann. Tax-Gen. §10-210.1; Maryland Comptroller Form 500DM (marylandtaxes.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.