Does Wisconsin Allow Bonus Depreciation?

Depreciation is an accounting method allowing businesses to deduct the cost of certain assets over their useful life. This deduction reduces taxable income, reflecting an asset’s gradual wear and tear or obsolescence. Understanding how depreciation rules apply at both federal and state levels is crucial for businesses. This article clarifies Wisconsin’s stance on bonus depreciation and outlines necessary adjustments for state tax returns.

Understanding Federal Bonus Depreciation

Federal bonus depreciation is a tax incentive allowing companies to immediately deduct the full cost of eligible new or used depreciable business assets. This provision accelerates cost recovery, providing a larger deduction in the year an asset is placed in service compared to traditional depreciation methods. It aims to stimulate economic growth by incentivizing businesses to purchase qualified property.

For qualified property placed in service after January 19, 2025, the “One Big Beautiful Bill Act” permanently reinstated 100% bonus depreciation. Previously, the bonus depreciation percentage was in a phase-down schedule, decreasing to 60% in 2024 and 40% in 2025. Qualified property generally includes tangible personal property with a recovery period of 20 years or less, certain computer software, and qualified improvement property.

Section 179 expensing is another related federal provision, permitting businesses to deduct the full purchase price of qualifying equipment and off-the-shelf software placed in service during the tax year, up to certain limits. For 2025, the maximum Section 179 deduction is $2.5 million, with a phase-out threshold beginning at $4 million of qualifying property placed in service. Both Section 179 and bonus depreciation accelerate deductions, but operate under distinct rules and limitations.

Wisconsin’s Approach to Depreciation

Wisconsin generally does not conform to federal bonus depreciation provisions. This means businesses cannot claim bonus depreciation on their Wisconsin state income tax returns. The state legislature has decoupled from federal bonus depreciation rules, often due to concerns about state revenues.

For Wisconsin tax purposes, depreciation is calculated using federal Modified Accelerated Cost Recovery System (MACRS) rules, but without the bonus depreciation component. Wisconsin’s tax law generally conforms to the Internal Revenue Code (IRC) as it existed on a specific date. This means federal bonus depreciation provisions enacted after that conformity date are not adopted by Wisconsin.

Wisconsin’s treatment of bonus depreciation differs from its stance on Section 179 expensing. Unlike bonus depreciation, Wisconsin generally conforms to federal Section 179 expense deduction rules. This allows businesses to expense qualifying property under Section 179 for both federal and Wisconsin tax purposes, subject to the same dollar and business income limitations.

Adjusting Depreciation for Wisconsin Tax Returns

Due to Wisconsin’s non-conformity with federal bonus depreciation, taxpayers must make specific adjustments when preparing their state income tax returns. The primary impact is that any bonus depreciation claimed on the federal return must be added back to federal taxable income for Wisconsin purposes. This addition ensures that Wisconsin’s tax calculation is based on depreciation computed without the federal bonus allowance.

To facilitate these adjustments, Wisconsin provides specific tax forms. For individual taxpayers and certain entities, Wisconsin Schedule I, “Adjustments to Convert Federal Adjusted Gross Income,” is used to reconcile differences between federal and Wisconsin income. Schedule AD, “Additions to Income,” is also utilized to report items deductible for federal purposes but not for Wisconsin, including federal bonus depreciation.

The process involves calculating depreciation for Wisconsin purposes as if federal bonus depreciation was not taken. The difference between federal depreciation (including bonus depreciation) and Wisconsin depreciation (without bonus depreciation) is reported as an adjustment. This adjustment impacts the adjusted basis of assets, requiring taxpayers to maintain separate depreciation schedules and track both federal and Wisconsin adjusted bases for depreciable property. These adjustments may be necessary each year until the asset is fully depreciated for both federal and Wisconsin tax purposes.