Vermont does not conform to federal §168(k) bonus depreciation for individuals, trusts, or estates. The state has statutorily excluded §168(k) from the personal tax base since 2008 under 32 V.S.A. §5811. STR investors get the full federal deduction but must add back 100% on the Vermont return. On a $150,000 federal deduction, that costs about $13,125 in Year-1 state tax timing. Cross-reference our all-50-states conformity guide to see how Vermont lines up against every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Open the state conformity tool →
How Vermont Treats §168(k) — The Add-Back Mechanic
Vermont's §168(k) decoupling is written directly into the definition of Vermont net income. For property placed in service on or after January 1, 2008, individuals, trusts, and estates must remove the federal §168(k) deduction from their Vermont taxable income calculation. Pass-through entity owners — the structure most STR investors use for their Stowe, Killington, or Woodstock chalets — must make the adjustment on their individual return.
The mechanic: compute federal taxable income using the full §168(k) deduction. On the Vermont return, add back the entire federal bonus amount via addition modification on Schedule IN-112. Then take Vermont depreciation using standard MACRS without bonus. In years 2 onward, Vermont depreciation exceeds federal depreciation, and the excess is reported as a subtraction modification until the full amount is recovered.
Because federal was accelerated in Year 1, the Vermont subtraction in years 2 through the end of the recovery period offsets the earlier addition. This is a timing shift, not a permanent loss — but at Vermont's 8.75% top marginal rate, the time value of the deferred savings adds up on a large STR purchase.
Worked Example — $150,000 Federal Deduction on a Vermont STR
Consider an investor buying a $1.4M ski chalet in Stowe, running a cost seg-style analysis, and identifying $150,000 in 5-year and 15-year bonus-eligible property (kitchen finishes, appliances, FF&E, hot tub, outdoor deck, landscaping). The federal §168(k) deduction is $150,000 in Year 1.
Assumptions: Federal marginal rate 37% · Vermont top marginal rate 8.75% · Bonus depreciation acquired and placed in service after January 19, 2025 · STR loophole (§469) qualification confirmed for federal purposes.
| Line | Federal return | Vermont return |
|---|---|---|
| §168(k) Year-1 deduction | $150,000 | $0 (100% add-back) |
| Year-1 tax rate | 37% | 8.75% |
| Year-1 tax savings | $55,500 | $0 |
| Year-1 state savings missed | — | ~$13,125 |
| Recovery | N/A (fully deducted) | MACRS over 5/15/39 years |
Vermont's 8.75% top marginal rate means the Year-1 state timing hit is roughly $13,125 — larger than most decoupled states because of the high rate. The federal $55,500 Year-1 savings is unaffected.
The Statute Explained
Note a common trap: some third-party conformity trackers list Vermont as a full conformer because Vermont conforms to the IRC generally. That's misleading. The individual, trust, and estate decoupling from §168(k) is written directly into 32 V.S.A. §5811(18)(A) and (21)(A) and applies to any property placed in service after January 1, 2008. Always cross-reference the Vermont Department of Taxes Technical Bulletin TB-44 rather than a summary table.
How Vermont Compares to Federal-Conforming States
Of the 50 US states plus DC, roughly half conform fully to federal §168(k) — including nearby Delaware, which flows the entire federal bonus through to the state return with no add-back. Vermont sits in the decoupled camp with Massachusetts, New York, and New Jersey — its 8.75% top rate puts it in the upper-middle of the pack for state timing impact, roughly comparable to Massachusetts but well below California, DC, and NYC.
Use the state conformity tool to compare Vermont against any other state at any federal deduction amount, or browse the full 50-state hub for a side-by-side view.
What This Means for Your STR Purchase Decision
Vermont's ski towns — Stowe, Killington, Sugarbush, Okemo — are premium STR markets where property values and rental rates support meaningful cost seg opportunities. The state's non-conformity is real, but doesn't change whether a deal pencils. Three practical implications:
- Federal Year-1 savings are the primary lever. On a Stowe chalet with $150,000 in bonus-eligible property, the $55,500 federal Year-1 savings is where the STR loophole delivers real dollars.
- Vermont's high rate makes the timing miss more visible. At 8.75%, the $13,125 Year-1 state timing hit is larger than most decoupled states — model it into your first-year cash flow projection.
- Pass-through owners need to track carefully. The K-1 flowthrough of state addition/subtraction modifications requires coordinated tax prep at the entity and personal level.
Before you write an offer on a Vermont STR, run the address on your property — the report models the full federal Year-1 deduction and lets you factor Vermont's timing shift into your underwriting.
Analyze a specific Vermont property
Run any Vermont STR listing through DepreciMax's $99 property report — line-item finish classification, federal §168(k) modeling, and Vermont timing math included.
Frequently asked questions
Does Vermont conform to federal §168(k) bonus depreciation in 2026?
No. Vermont statutorily excludes §168(k) from the individual, trust, and estate tax base for property placed in service on or after January 1, 2008. STR investors add back 100% on the Vermont return under 32 V.S.A. §5811.
How much does Vermont non-conformity cost a short-term rental investor?
On a $150,000 federal §168(k) deduction with Vermont's 8.75% top marginal rate and 100% add-back, the Year-1 state miss is approximately $13,125. The federal $55,500 Year-1 savings is unaffected.
What is the Vermont statute for §168(k) non-conformity?
32 V.S.A. §5811(18)(A) and (21)(A); Vermont Technical Bulletin TB-44 documents the mechanics.
Are some conformity trackers wrong about Vermont?
Yes. Some tables list Vermont as a full conformer because Vermont conforms to the IRC generally — but the individual-level §168(k) decoupling is explicit in 32 V.S.A. §5811. Always cross-reference TB-44.
Does Vermont non-conformity kill the short-term rental loophole?
No. The STR loophole is a federal §469 mechanism. Vermont's add-back only changes state-level Year-1 timing. The federal deduction and the federal STR loophole benefit are unaffected.
How do I recover the Vermont add-back over time?
Vermont depreciation in years 2 forward exceeds federal (because federal was accelerated in Year 1). The difference is a subtraction modification on Schedule IN-112 each year until fully recovered.
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