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 Massachusetts comes in.
2. Massachusetts and federal bonus depreciation
Massachusetts has fully decoupled from IRC 168(k) bonus depreciation since 2002 for both the personal income tax (G.L. c. 62, secs. 1(c) and 2(d)(1)(N)) and the corporate excise (G.L. c. 63, sec. 30(4)(iv)). Taxpayers must compute Massachusetts depreciation under IRC 168 as if they had elected out of bonus, so the OBBBA's permanent 100% bonus for property acquired after January 19, 2025 provides zero Massachusetts benefit; DOR's OBBBA guidance (TIR 26-4) confirms neither tax conforms to OBBBA sec. 70301 full expensing. The June 2026 supplemental budget (HB 5470) also disallowed the new IRC 168(n) qualified production property allowance for 2025-2026. Nothing in the 2025-2026 sessions moved Massachusetts toward bonus conformity; the state instead tightened decoupling.
No multi-year addback/recovery schedule. The federal bonus amount is simply disallowed and the asset is depreciated for Massachusetts over its regular MACRS life (as if the taxpayer elected out of 168(k)). Massachusetts basis stays higher than federal basis, so annual MA depreciation is larger in later years and MA gain on sale is smaller than federal gain; taxpayers track a separate MA depreciation schedule and basis per TIR 02-11 and TIR 03-25.
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 Massachusetts return, the $250,000 federal bonus deduction is not allowed. No multi-year addback/recovery schedule. The federal bonus amount is simply disallowed and the asset is depreciated for Massachusetts over its regular MACRS life (as if the taxpayer elected out of 168(k)). Massachusetts basis stays higher than federal basis, so annual MA depreciation is larger in later years and MA gain on sale is smaller than federal gain; taxpayers track a separate MA depreciation schedule and basis per TIR 02-11 and TIR 03-25.
Model your own numbers with the tax strategy projector.
3. Section 179 in Massachusetts
Massachusetts Section 179 cap: 2025-2026: pre-OBBBA limits apply (2025: $1,250,000 deduction cap, $3,130,000 phaseout threshold); federal $2.5M/$4M limits adopted starting tax years beginning on or after January 1, 2027.
Massachusetts historically conforms fully to federal Section 179 with no separate state cap (a 179 deduction must have been claimed federally to be claimed for MA). But HB 5470 (signed June 12, 2026) delays conformity to the OBBBA's increased $2.5M/$4M thresholds until tax years beginning on or after January 1, 2027; for 2025 and 2026, taxpayers must recalculate their 179 deduction without regard to Public Law 119-21, i.e. under the prior-law inflation-indexed limits. Applies to both chapter 62 personal income tax and chapter 63 corporate excise. The 2025 Form 1 instructions carry this recalculation requirement.
4. Does it still help in Massachusetts?
Yes. Massachusetts follows regular IRC 168 MACRS recovery periods (5/7/15/27.5/39-year) in full; only the 168(k) first-year allowance is stripped out. Reclassifying components into 5-, 7-, and 15-year property via a cost segregation study still meaningfully accelerates Massachusetts depreciation versus 27.5/39-year straight-line, and Section 179 (at the pre-OBBBA caps for 2025-2026) remains available for eligible property.
- •Massachusetts has been decoupled from 168(k) continuously since 2002, one of the longest-standing full decouples in the country, and it applies to individuals, corporations, financial institutions, and utilities alike
- •No addback-and-recover mechanism (unlike Minnesota's 80%/5-year spread): you simply depreciate as if you elected out of bonus, which means a permanently separate MA depreciation schedule and asset basis
- •On sale of a bonus-depreciated property, Massachusetts gain is smaller than federal gain because MA basis was never reduced by bonus (TIR 03-25 basis-adjustment rules)
- •HB 5470 (June 12, 2026) retroactively decoupled from several OBBBA business provisions for 2025-2026, including the Section 179 increases, IRC 168(n) qualified production property, and 163(j) changes, with a 90-day penalty-free amendment window for early 2025 filers
- •Going forward, Massachusetts law now automatically decouples from new federal IRC amendments effective 2026+ unless the revenue impact is under $20 million over a rolling three-year period, so future federal depreciation sweeteners will not flow through by default
- •Personal income tax is otherwise static-conformed to the IRC as of January 1, 2024, while trade-or-business deductions and the corporate excise follow the current Code subject to the specific decouples, a mixed regime that trips up multistate preparers
- •Massachusetts taxes most income at a 5% flat rate plus the 4% surtax on income over roughly $1 million, so the lost bonus deduction can cost a high-income real estate investor up to 9% of the reclassified amount in year one at the state level
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.