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 Mexico comes in.
2. New Mexico and federal bonus depreciation
New Mexico is a rolling-conformity state and historically conformed in full to IRC 168(k), including OBBBA's permanent 100% bonus for property acquired after January 19, 2025. For INDIVIDUAL income tax, that remains true: the personal income tax starts from federal adjusted gross income and SB 151 (2026) did not amend the Income Tax Act, so individuals, rental-property owners, and pass-through members keep 100% bonus depreciation on the New Mexico return for 2025, 2026, and beyond under current law. For CORPORATE income tax, SB 151 (signed March 11, 2026) decouples from 168(k) and the new 168(n) qualified-production-property expensing for tax years beginning on or after January 1, 2027; C-corps still get full bonus through tax year 2026, then must add back the excess and depreciate under regular MACRS.
Corporate only, TY2027+: add back to New Mexico base income the 168(k)/168(n) deduction in excess of the amount allowed under IRC 168(a)-(j); recovery happens automatically through regular MACRS depreciation over the asset's normal recovery period (no fixed-year addback spread). No addback at all for individual income tax.
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
New Mexico allows only part of the federal bonus deduction. Corporate only, TY2027+: add back to New Mexico base income the 168(k)/168(n) deduction in excess of the amount allowed under IRC 168(a)-(j); recovery happens automatically through regular MACRS depreciation over the asset's normal recovery period (no fixed-year addback spread). No addback at all for individual income tax.
Model your own numbers with the tax strategy projector.
3. Section 179 in New Mexico
Full conformity via rolling conformity to the current IRC, including OBBBA's increased $2.5M expensing limit and $4M phase-out threshold (indexed). SB 151 did not touch Section 179, so even C-corps affected by the 2027 bonus decoupling keep full federal 179 expensing on the New Mexico return.
4. Does it still help in New Mexico?
Yes. New Mexico computes tax from federal AGI (individuals) or federal taxable income (corporations), so federal MACRS recovery periods (5/7/15/27.5/39-year) flow through intact; even post-2027 C-corps that lose bonus still benefit from cost-seg reclassification into shorter MACRS lives, since the addback only strips the 168(k)/168(n) excess over regular 168(a)-(j) depreciation.
- •SB 151 (2026) is titled 'Corporate Income Tax Changes' and amends only the Corporate Income and Franchise Tax Act; the personal income tax was deliberately left on full rolling conformity, so pass-through real estate investors keep 100% bonus while C-corps lose it in 2027.
- •The corporate decoupling has a delayed effective date: C-corps still claim full 100% bonus for tax years beginning in 2025 and 2026; the addback starts with tax years beginning on or after January 1, 2027.
- •The corporate addback is self-recovering: only the excess of 168(k)/168(n) deductions over regular 168(a)-(j) MACRS is added back, so corporations simply depreciate on normal MACRS schedules rather than tracking a multi-year addback recapture like Minnesota's 80%/5-year scheme.
- •SB 151 also decouples the corporate tax from OBBBA's 163(j) interest-limitation change and pulls Net CFC Tested Income (NCTI, the GILTI successor) into the corporate base, making New Mexico one of the first states to decouple from OBBBA full expensing.
- •SB 151 additionally decouples from new IRC 168(n) 100% expensing for qualified production property (manufacturing facilities), again corporate-only, TY2027+.
- •New Mexico's top individual rate is 5.9% (restructured brackets effective 2025), so the state-level swing from a cost-seg study is meaningful but far smaller than the federal benefit.
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.