Definitive 2026 breakdown of Massachusetts'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) | Massachusetts state timing loss |
|---|---|---|---|---|
| Small STR — $50,000 federal deduction | $50,000 | $16,000 | $18,500 | $4,500 |
| Typical STR — $150,000 federal deduction | $150,000 | $48,000 | $55,500 | $13,500 |
| Luxury/multi-property — $300,000 federal deduction | $300,000 | $96,000 | $111,000 | $27,000 |
"Massachusetts state timing loss" = the Year-1 state tax savings foregone because of Massachusetts'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.
Massachusetts does not conform federal §168(k) bonus depreciation. Massachusetts requires a 100% add-back of §168(k) bonus depreciation for both PIT and corporate excise purposes. Massachusetts DOES allow the §179 expense election (unlike bonus). The 4% millionaires' surtax on income >$1M means high-income STR investors face an effective 9% top rate. On a $150,000 federal bonus deduction, a Massachusetts STR investor at 9% loses ~$13,500 in Year-1 state savings. Basis is adjusted for state purposes so disposition gain/loss is recalculated on the MA return.
On a $150,000 federal §168(k) bonus depreciation deduction, a Massachusetts STR investor at the 9% top marginal rate loses $13,500 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 Massachusetts'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 Massachusetts add-back is a deferral, not a permanent loss — deductions recover over the property's normal MACRS life on the state return.