1. What a cost segregation study does
A building normally depreciates over 27.5 years (residential) or 39 years (commercial). A cost segregation study breaks the purchase price apart and reclassifies components like flooring, cabinetry, dedicated electrical, and land improvements into 5, 7, and 15-year property, so a large slice of the basis depreciates on much shorter schedules.
On the federal return, that reclassified property also qualifies for bonus depreciation, which restores a 100% first-year write-off for qualifying property acquired and placed in service after January 19, 2025. States set their own rules, which is where Idaho comes in.
2. Idaho and federal bonus depreciation
Idaho has decoupled from IRC 168(k) bonus depreciation for property acquired after 2009 (and before 2008), for both individual and corporate taxpayers, under Idaho Code 63-3022O. Federal bonus depreciation is added back and Idaho depreciation, basis, and gains/losses are recomputed as if no bonus had been claimed, using regular MACRS. Post-OBBBA this did not change: House Bill 559 (signed Feb 10, 2026, retroactive to Jan 1, 2025) updated Idaho's conformity date to Jan 1, 2026 and conformed to most of the One Big Beautiful Bill Act, but expressly kept Idaho decoupled from 168(k) and newly decoupled from 168(n) (OBBBA's 100% expensing for qualified production property). So the federal permanent 100% bonus for property acquired after Jan 19, 2025 does not flow through to the Idaho return.
Not a fixed-percentage addback like Minnesota. Idaho requires a full recomputation: the taxpayer adds back the entire federal bonus deduction and instead deducts regular MACRS depreciation computed without bonus, reported as the federal-vs-Idaho depreciation difference on Form 39R/39NR (Part A addition or Part B subtraction), attaching a separate Idaho-basis Form 4562. The disallowed amount is recovered through regular MACRS deductions over the asset's recovery period and through a higher Idaho basis (smaller gain) on sale. Idaho Code 63-3022O also suspends the addback to the extent the federal bonus deduction is itself suspended by loss limitations under IRC 465, 469, 704(d), or 1366(d) -- directly relevant to passive real estate investors.
Worked example
A $1,000,000 building, with and without a study
Illustrative only. A residential rental purchased for $1,000,000 of building basis (land excluded), acquired and placed in service after January 19, 2025.
Building basis
$1,000,000
Reclassified to 5, 7, and 15-year property (25%)
$250,000
Federal first-year deduction at 100% bonus
$250,000
Year 1 on that $250,000 without a study (27.5-year straight line)
about $9,100
On the Idaho return, the $250,000 federal bonus deduction is not allowed. Not a fixed-percentage addback like Minnesota. Idaho requires a full recomputation: the taxpayer adds back the entire federal bonus deduction and instead deducts regular MACRS depreciation computed without bonus, reported as the federal-vs-Idaho depreciation difference on Form 39R/39NR (Part A addition or Part B subtraction), attaching a separate Idaho-basis Form 4562. The disallowed amount is recovered through regular MACRS deductions over the asset's recovery period and through a higher Idaho basis (smaller gain) on sale. Idaho Code 63-3022O also suspends the addback to the extent the federal bonus deduction is itself suspended by loss limitations under IRC 465, 469, 704(d), or 1366(d) -- directly relevant to passive real estate investors.
Model your own numbers with the tax strategy projector.
3. Section 179 in Idaho
Idaho fully conforms to IRC Section 179 with no state-specific cap; the Form 39R/39NR instructions let you claim the Section 179 expense on the Idaho return to the extent claimed federally. Because HB 559 moved the conformity date to Jan 1, 2026 retroactive to Jan 1, 2025, Idaho picks up OBBBA's increased Section 179 limits (roughly $2.5M expensing / $4M phase-out for 2025) for tax years 2025 forward. Section 179 is therefore the main immediate-expensing lever that survives intact on the Idaho return.
4. Does it still help in Idaho?
Yes. Idaho disallows only the bonus percentage, not the classification: it follows federal MACRS recovery periods, so property reclassified by a cost seg study into 5-, 7-, or 15-year classes still depreciates on those shorter schedules (vs 27.5/39-year) on the Idaho return, and Section 179 (where eligible) passes through fully.
- •Idaho is one of the longest-standing bonus decouplers: it has disallowed 168(k) for property placed in service in every year except a brief 2008-2009 conformity window (Idaho Code 63-3022O; IDAPA 35.01.01.125 covers property acquired after 9/10/2001 and before 12/31/2007 or after 12/31/2009).
- •February 2026's HB 559 conformed Idaho to most of OBBBA retroactive to Jan 1, 2025 (tips, overtime, senior deduction, R&E expensing from 2025) but kept the 168(k) decouple, added a 168(n) qualified production property decouple, and rejected the federal catch-up for 2022-2024 domestic R&E costs (those keep amortizing).
- •Staying decoupled from bonus was estimated to cost Idaho businesses about $151 million in additional state tax in tax year 2026 during the HB 559 debate.
- •Idaho Code 63-3022O has a taxpayer-friendly passive-loss interaction: if the federal bonus deduction is suspended under IRC 465/469/704(d)/1366(d) loss limitations, the Idaho addback is also suspended until the deduction is actually used -- a meaningful nuance for passive rental investors.
- •The addback is a timing difference, not a permanent one: Idaho taxpayers keep a separate Idaho depreciation schedule (separate Form 4562), recover the disallowed bonus via regular MACRS, and get a higher Idaho basis (smaller gain) when the property sells.
- •Idaho uses a flat individual and corporate income tax rate (5.3% for 2025 after HB 40), so the addback's cost is easy to estimate: roughly 5.3 cents per dollar of bonus deferred in year one.
5. The exit: recapture and timing
The accelerated deductions come back into view when you sell. Gain attributable to the 5, 7, and 15-year property is Section 1245 recapture, taxed at ordinary rates, and the straight-line depreciation on the building itself is unrecaptured Section 1250 gain, taxed at up to 25%. A study does not create that bill, it moves deductions forward, but the timing of the sale decides how much of the benefit you keep.
Two levers manage the exit. A 1031 exchange defers both flavors of recapture along with the rest of the gain, and simply holding the property lets the time value of the early deductions do its work; most owners want a 3 to 5 year horizon before a taxable sale for the math to stay comfortably positive. Model the exit before you commission the study, not after.