Michigan conforms to the Internal Revenue Code as in effect December 31, 2024 — before OBBBA. STR investors get 100% federal §168(k) on the federal return for property acquired and placed in service after January 19, 2025, but only 20% bonus on the Michigan return in 2026 (per the pre-OBBBA phaseout that Michigan preserved in its October 2025 budget). The federal deduction is unaffected; state timing is stretched over MACRS life. See the full 50-state conformity map to compare Michigan's treatment to every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction in 2026. Michigan state deduction = $30,000 (20% state bonus); remaining $120,000 depreciated over MACRS life. Run your own numbers in the Conformity Tool →
How Michigan adopts §168(k) — the IRC-snapshot mechanic
Michigan uses fixed-date IRC conformity for individual income tax purposes. The October 2025 budget package updated Michigan's conformity date to the Internal Revenue Code as in effect December 31, 2024. That snapshot does not include the One Big Beautiful Bill Act (OBBBA, P.L. 119-21), which was enacted July 4, 2025 and restored 100% federal §168(k) permanently for property acquired and placed in service after January 19, 2025.
Under Michigan's December 31, 2024 IRC snapshot, §168(k) follows the pre-OBBBA phaseout schedule: 40% for 2025, 20% for 2026, 0% for 2027. That's the state bonus percentage — the federal deduction is unaffected, because Michigan cannot alter federal law.
The controlling statutes are MCL §206.607 and MCL §206.30, which set the Michigan individual income tax base as federal AGI with limited modifications, referenced to the specified IRC date.
Worked example — $150,000 federal deduction with 20% Michigan state bonus
Consider a Michigan STR investor with a $150,000 Year-1 federal §168(k) deduction on a short-term rental acquired and placed in service after January 19, 2025. Assume the investor is in the 37% federal bracket and pays Michigan's 4.25% flat individual income tax.
| Line | Amount | Notes |
|---|---|---|
| Federal §168(k) deduction (100%) | $150,000 | OBBBA 100% bonus |
| Federal Y1 tax savings @ 37% | $55,500 | Ordinary bracket |
| Michigan state bonus (20% in 2026) | $30,000 | Pre-OBBBA schedule |
| Michigan Y1 state tax savings @ 4.25% | $1,275 | 20% state bonus × flat rate |
| Michigan deferred to MACRS life | $120,000 | Recovered over 5/15/39 years |
| Total Year-1 combined savings | $56,775 | Federal + Michigan Y1 |
The remaining $120,000 of Michigan deduction is not lost — it's recovered over the property's normal MACRS life on the Michigan return. The state impact is a timing difference, not a permanent add-back like California or New York.
The statute explained
The controlling Michigan authority is MCL §206.607 (Michigan individual income tax base) and MCL §206.30 (limited modifications), read together with the October 2025 budget package that pegged IRC conformity to December 31, 2024. This is a static-date snapshot — not rolling — so future federal changes (like OBBBA) require legislation to adopt.
How Michigan compares to decoupled states
Michigan's partial state bonus is still better than a full decoupler. In California, the same $150,000 federal deduction triggers a full $150,000 add-back on the state return — giving up roughly $19,950 in Year-1 state savings at California's 13.3% rate, permanently deferred over MACRS. Michigan's investors give up state timing on $120,000 in 2026 (a 4.25% impact), not on the whole $150,000 at a high rate.
To model Michigan against any decoupled state at any deduction amount, use the state conformity tool.
What this means for your STR purchase decision
Michigan's pre-OBBBA snapshot creates a real underwriting nuance for 2026. The federal deduction is still worth the full $55,500 on a $150,000 bonus-eligible property, and that's the big lever. The Michigan Year-1 impact is small ($1,275 at the 20% state bonus rate), but the remaining $120,000 of state deduction comes back over MACRS life — it's a timing difference, not a permanent loss.
The qualifier: the property must be acquired and placed in service after January 19, 2025 to qualify for OBBBA's 100% federal bonus.
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 Michigan state impact.
Analyze a specific Michigan property
Run any Michigan STR listing through DepreciMax's $99 property report — line-item finish classification with Michigan-specific state impact math.
Frequently asked questions
Do I get bonus depreciation on both my federal and Michigan return?
Yes, but with a divergence in the bonus percentage. Federal §168(k) is 100% for property acquired and placed in service after January 19, 2025 under OBBBA. Michigan's individual income tax conforms to the IRC as in effect December 31, 2024 (updated in the October 2025 budget) — that snapshot preserves the pre-OBBBA phaseout: 40% bonus for 2025, 20% for 2026, 0% for 2027. So on a $150,000 federal deduction in 2026, Michigan allows $30,000 as state bonus and the remaining $120,000 is depreciated over the property's normal MACRS life on the Michigan return.
What is Michigan's individual income tax rate?
Michigan has a flat 4.25% individual income tax rate. On a $150,000 federal §168(k) deduction in 2026, the 20% state bonus allowed under Michigan's pre-OBBBA conformity yields $30,000 in state deduction — roughly $1,275 in Year-1 state tax savings. The remaining $120,000 is recovered over MACRS life on the state return.
Does Michigan plan to change its §168(k) conformity in 2026?
The October 2025 budget package updated Michigan's IRC conformity date to December 31, 2024 — which explicitly does not include OBBBA. Whether the legislature adopts OBBBA in a future session is not currently on the public docket. Investors should watch the DepreciMax state conformity hub for updates.
What happens on sale — does Michigan recapture bonus depreciation?
Because Michigan's state bonus percentage is lower than federal in 2026, the Michigan basis in the asset is higher than the federal basis. On sale, gain is computed separately for federal (§1245 / §1250 recapture on the accelerated federal basis) and Michigan (recapture on the slower state basis). Michigan's timing hit is essentially deferred, not lost — the state recovers the deduction over MACRS life.
Does Michigan conformity apply to §179 as well?
Yes. Michigan conforms to federal §179 expensing without a separate state cap under the same December 31, 2024 IRC snapshot. STR investors can layer §179 (for qualifying tangible personal property) on top of §168(k) at the federal level, and §179 flows through to Michigan without add-back.
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 →