Definitive 2026 breakdown of California's treatment of federal IRC §168(k) 100% bonus depreciation for short-term rental investors. Verified against primary state DOR sources and cross-referenced to the DepreciMax state conformity dataset.
| Scenario | Federal §168(k) deduction | Federal tax savings (32% bracket) | Federal tax savings (37% bracket) | California state timing loss |
|---|---|---|---|---|
| Small STR — $50,000 federal deduction | $50,000 | $16,000 | $18,500 | $6,650 |
| Typical STR — $150,000 federal deduction | $150,000 | $48,000 | $55,500 | $19,950 |
| Luxury/multi-property — $300,000 federal deduction | $300,000 | $96,000 | $111,000 | $39,900 |
"California state timing loss" = the Year-1 state tax savings foregone because of California's 100% add-back. Deductions recover over the property's normal MACRS depreciation life on the state return — this is a timing hit, not a permanent loss. The federal deduction is unaffected.
California does not conform federal §168(k) bonus depreciation. SB 711 (enacted October 1, 2025) advanced California's IRC conformity date from 1/1/2015 to 1/1/2025, but explicitly does not include OBBBA (P.L. 119-21). California continues to disallow §168(k) for both PIT and CT purposes. On a $150,000 federal bonus deduction, a California STR investor at the 13.3% top marginal rate misses ~$19,950 in Year-1 state tax savings (the largest miss in the country). The federal deduction is unaffected. Recover deductions over MACRS life on state return. FTB Publication 1001 documents the modification.
On a $150,000 federal §168(k) bonus depreciation deduction, a California STR investor at the 13.3% top marginal rate loses $19,950 in Year-1 state tax savings due to the 100% add-back. The federal savings of about $48,000-$55,500 (at 32%-37% brackets) are unaffected and remain the dominant portion of the Year-1 tax benefit.
Yes — federal §168(k) 100% bonus depreciation remains the largest single Year-1 tax benefit for STR investors, and it is unaffected by California's state-level decoupling. The federal deduction still offsets W-2 income when the §469(c)(2) STR loophole applies (average guest stays ≤ 7 days + material participation). The California add-back is a deferral, not a permanent loss — deductions recover over the property's normal MACRS life on the state return.