New Mexico fully conforms to federal §168(k) via rolling IRC conformity. STR investors take the 100% Year-1 bonus depreciation deduction — restored by the One Big Beautiful Bill Act (OBBBA, P.L. 119-21) for property acquired and placed in service after January 19, 2025 — on both federal and New Mexico returns, with no state add-back and no separate depreciation schedule. Visit the full state conformity hub to compare New Mexico's treatment to every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Compare in the state conformity tool →
How New Mexico Adopts §168(k) — Rolling vs Static Conformity
New Mexico's Personal Income Tax base is defined under N.M. Stat. §7-2-2 by reference to the Internal Revenue Code "as currently in effect." That single design choice — rolling conformity — is what makes New Mexico a full §168(k) conformer.
Rolling-conformity states inherit federal IRC amendments the moment they take effect. Static-conformity states (like California, Georgia, or Virginia) freeze conformity as of a specific date and must pass follow-on legislation to pick up new federal changes. When Congress restored 100% bonus depreciation in the One Big Beautiful Bill Act, rolling-conformity states auto-adopted; static states had to wait.
For a New Mexico STR investor, this means the state return mirrors the federal return on depreciation. No Form 4562 variant. No addition modification. No separate MACRS schedule to maintain across the property's 27.5- or 39-year life.
Worked Example — $150K Federal Deduction + Extra State Savings
Suppose you close on a $1.1M short-term rental in Taos or Santa Fe, complete a cost segregation analysis, and identify $150,000 of 5-year and 15-year property eligible for §168(k) bonus depreciation. The math:
- Federal Year-1 deduction: $150,000 at your 37% marginal bracket = $55,500 in federal tax savings.
- New Mexico Year-1 deduction: The same $150,000 flows through to your state return unchanged. At the 5.9% top marginal rate = $8,850 in additional state tax savings.
- Total Year-1 tax benefit: $64,350 — about 43% of the deduction amount, back in your pocket in the first tax year.
Contrast that with a decoupled state investor at the same 37% federal bracket: federal savings are identical, but the state return adds back the entire $150,000 and pushes the state benefit into future years as MACRS depreciation. In New Mexico, timing and cash are aligned.
The Statute Explained
The controlling citation is N.M. Stat. §7-2-2, which defines "base income" for New Mexico Personal Income Tax by reference to federal adjusted gross income under the Internal Revenue Code. Because the reference is to the IRC as currently in effect — not as in effect on a specified freeze date — federal depreciation provisions apply for New Mexico purposes on the same effective date they apply federally.
OBBBA restored 100% §168(k) bonus depreciation permanently for property acquired and placed in service after January 19, 2025. Under New Mexico's rolling conformity, that provision is operative for state purposes on the same date. There is no state-level exclusion or modification for §168(k).
How New Mexico Compares to Decoupled States
New Mexico sits comfortably in the full-conformer camp — one of roughly half of US jurisdictions that let §168(k) pass through untouched. For contrast, take three prominent decouplers:
- California requires a 100% state add-back of §168(k); at the 13.3% top rate, that's a ~$19,950 Year-1 miss on a $150K deduction.
- New York has decoupled since 2003; at the 10.9% top rate, the Year-1 timing hit is ~$16,350.
- Pennsylvania disallows §168(k) for personal income tax entirely, adding ~$4,605 in Year-1 tax at the 3.07% flat rate.
In every case the decoupled-state investor eventually recovers the deduction over the property's normal MACRS life — but at the cost of five to 39 years of deferred cash and a permanent basis-tracking burden.
What This Means for Your STR Purchase Decision
For a New Mexico STR investor, §168(k) conformity is a tailwind, not a trap. There is no state clawback to model, no add-back schedule to project across the hold period, and no reduction in the up-front tax benefit that drives most STR pro formas.
That said, the deduction is only as large as the eligible basis your property supports. A $1M ski cabin in Angel Fire with a low land ratio and heavy 5-year interior finishes will generate a very different §168(k) deduction than a $1M adobe in downtown Santa Fe with a 30%+ land component. To model both federal and New Mexico state savings on a specific address, run the address on your property and see the line-item bonus-eligible breakdown before you make an offer.
Analyze a specific New Mexico property
Run any New Mexico STR listing through DepreciMax's $99 property report — line-item finish classification with both federal and New Mexico state Year-1 tax math.
For a side-by-side view of New Mexico against any other state at any federal deduction amount, use the state conformity tool.
Frequently Asked Questions
Does New Mexico conform to federal §168(k) bonus depreciation in 2026?
Yes. New Mexico is a rolling IRC conformity state under N.M. Stat. §7-2-2 and fully adopts federal §168(k) as restored by OBBBA (P.L. 119-21) for property acquired and placed in service after January 19, 2025. There is no state add-back — STR investors take the same Year-1 deduction on both the federal and state returns.
How much extra state tax savings does a New Mexico STR investor get from bonus depreciation?
On a $150,000 federal §168(k) deduction, a New Mexico investor at the 5.9% top marginal rate captures an additional $8,850 in Year-1 state tax savings on top of ~$55,500 in federal savings at the 37% bracket — total Year-1 tax benefit of about $64,350.
What is the New Mexico statute that governs IRC conformity?
N.M. Stat. §7-2-2 defines New Mexico's Personal Income Tax base by reference to the Internal Revenue Code as currently in effect. This 'rolling' conformity means federal IRC amendments — including OBBBA's restoration of 100% §168(k) bonus depreciation — flow through automatically without separate state legislation.
Does New Mexico require any Form 4562 add-back like decoupled states?
No. Because New Mexico's PIT base begins with federal AGI and applies no §168(k) modification, taxpayers do not file a state 4562 variant or an addition modification. The federal depreciation figure carries through unchanged.
How does New Mexico compare to a decoupled state like California?
California requires a 100% add-back of §168(k) on the state return, so a California investor at 13.3% loses ~$19,950 in Year-1 state savings on a $150,000 deduction. New Mexico investors face no such add-back and instead pick up ~$8,850 in additional state savings — a swing of roughly $28,800 in Year-1 cash between the two jurisdictions.
Will New Mexico's conformity change if OBBBA is amended later?
Because New Mexico uses rolling conformity, any future federal amendment to §168(k) would automatically apply for state purposes on the same effective date. No state legislative action is required to keep pace.
- New Mexico Taxation and Revenue Department — Individuals: tax.newmexico.gov/individuals/
- N.M. Stat. §7-2-2 (Personal Income Tax, IRC conformity)
- IRS §168(k) — Modified Accelerated Cost Recovery System, additional first-year depreciation
- One Big Beautiful Bill Act of 2025 (P.L. 119-21) — restored 100% §168(k) for property acquired and placed in service after January 19, 2025
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.
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