Cost Segregation in New Hampshire

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 New Hampshire comes in.

2. New Hampshire and federal bonus depreciation

New Hampshire has no personal income tax, so bonus depreciation never touches an individual return as such. But rental real estate is a taxable business organization under the Business Profits Tax (BPT), and for BPT purposes RSA 77-A:3-b expressly provides that IRC Section 168(k) shall not apply: all federal bonus depreciation is added back on the NH return and the asset is depreciated under regular pre-bonus MACRS, with a separate NH tax-basis schedule maintained for depreciation and for gain or loss on sale. NH is also a static-conformity state tied to the IRC as of December 31, 2018 (RSA 77-A:1, XX), so it did not adopt OBBBA's permanent 100% bonus for property acquired after January 19, 2025; a conformity-update bill (HB 1668) did not pass, and the 2025 BPT return instructions still require the full 168(k) addback.

100% addback of federal 168(k) bonus in the year claimed (reconciliation additions on NH-1040/NH-1065/NH-1120 per RSA 77-A:3-b); recovered over the asset's regular MACRS life via NH-only depreciation computed on a separately tracked NH basis, and via reduced gain (or larger loss) when the asset is sold. No fixed statutory recovery spread like Minnesota's 5-year formula.

3. Section 179 in New Hampshire

New Hampshire Section 179 cap: $500,000 for property placed in service on or after January 1, 2018 ($100,000 for 2017 placements; $25,000 before 2017).

RSA 77-A:3-b caps the IRC 179 deduction for BPT purposes at $500,000 per year for property placed in service on or after 1/1/2018 (raised from $100,000 by 2017 legislation, per Baker Newman Noyes and the NH BPT return instructions). NH did not adopt OBBBA's increase of the federal cap to $2.5 million, nor the post-2018 federal inflation indexing, so federal 179 expensing above $500,000 must be added back and depreciated under regular MACRS on the NH-basis schedule.

4. Does it still help in New Hampshire?

Yes. NH's BPT starts from federal taxable income under the IRC as of 12/31/2018, which includes standard MACRS class lives, so reclassifying components into 5/7/15-year property still accelerates deductions on the NH return; only the 168(k) bonus layer (and 179 above $500k) is added back. One trap: because NH's conformity date predates the CARES Act QIP fix, qualified improvement property remains 39-year (not 15-year) for NH BPT purposes.

• •NH repealed its last personal income tax (the 3% Interest & Dividends Tax) effective Jan 1, 2025, making it the only state with neither an individual income tax nor a sales tax.
• •Rental real estate IS subject to the 7.5% Business Profits Tax once gross business receipts from all activities exceed the filing threshold ($109,000 for tax periods beginning on or after Jan 1, 2025, indexed biennially); below that, a landlord files nothing.
• •RSA 77-A:3-b is a hard statutory decouple: IRC 168(k) 'shall not apply' for BPT, regardless of federal changes, and the state's static 12/31/2018 conformity date doubles the lock; OBBBA's permanent 100% bonus has no NH effect.
• •Taxpayers must maintain a separate NH tax-basis depreciation schedule, which also changes NH gain/loss on sale versus federal (less depreciation taken = less NH gain on disposition).
• •Because conformity is frozen at 12/31/2018 (pre-CARES Act), qualified improvement property is still 39-year, non-bonus property for NH BPT, unlike the federal 15-year/bonus-eligible treatment.
• •NH Section 179 cap is $500,000 (placed in service on or after 1/1/2018), not the federal $2.5M OBBBA cap; the state also skips federal inflation indexing.
• •A 2nd tax, the 0.55% Business Enterprise Tax, applies to larger enterprises (compensation/interest/dividends base) and ignores depreciation entirely.
• •A legislative attempt to advance the IRC conformity date (HB 1668) failed, so the 2018 freeze and the 168(k) addback remain in force for 2025-2026 returns.

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.