Definitive 2026 breakdown of Pennsylvania'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) | Pennsylvania state timing loss |
|---|---|---|---|---|
| Small STR — $50,000 federal deduction | $50,000 | $16,000 | $18,500 | $1,535 |
| Typical STR — $150,000 federal deduction | $150,000 | $48,000 | $55,500 | $4,605 |
| Luxury/multi-property — $300,000 federal deduction | $300,000 | $96,000 | $111,000 | $9,210 |
"Pennsylvania state timing loss" = the Year-1 state tax savings foregone because of Pennsylvania'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.
Pennsylvania does not conform federal §168(k) bonus depreciation. Pennsylvania Personal Income Tax (PIT) is the tax individual STR investors pay. PA PIT computes net profits from federal Schedule C/E without §168(k) bonus depreciation — depreciation is recalculated under §§167 and 168 without bonus. Act 72 (2018) fixed CNIT depreciation timing for corporate taxpayers but PIT treatment is unchanged. On a $150,000 federal bonus deduction, a PA STR investor at the 3.07% flat rate loses ~$4,605 in Year-1 state savings. Philadelphia BIRT also decouples separately (following state approach).
On a $150,000 federal §168(k) bonus depreciation deduction, a Pennsylvania STR investor at the 3.07% top marginal rate loses $4,605 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 Pennsylvania'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 Pennsylvania add-back is a deferral, not a permanent loss — deductions recover over the property's normal MACRS life on the state return.