Federal vs. State Depreciation Differences
States start from the federal Code but may conform to an older date or decouple from bonus depreciation, §179, or §168(n). California is confirmed from FTB 3885. Other states are not listed here until confirmed on official state pages. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Federal depreciation and state depreciation can differ in the same year.
- California’s 2025 FTB 3885 instructions conform to the IRC as of January 1, 2025, with listed exceptions.
- California does not conform to §168(k), the enhanced §179 election, or §168(n).
- California’s own §179 maximum is $25,000, reduced above $200,000 of qualifying property.
- A federal cost segregation study still classifies components; state adjustments are a CPA matter.
A cost segregation study classifies components under federal MACRS. States that start from federal taxable income may then add back federal bonus depreciation or require a different recovery method. Those adjustments do not change the federal classification; they change how much of the federal deduction is allowed on the state return.
California’s 2025 Instructions for Form FTB 3885 state that, for taxable years beginning on or after January 1, 2025, California law conforms to the Internal Revenue Code as of January 1, 2025, and that continuing differences remain. The instructions list, among the items to which California does not conform, IRC §168(n) (the 100 percent depreciation election for qualified production property), the enhanced IRC §179 expensing election, and IRC §168(k) relating to the depreciation deduction for certain assets.
The same instructions say California’s maximum §179 expense deduction is $25,000, reduced if the cost of all §179 property placed in service during the year is more than $200,000, and that California does not allow the §179 election for off-the-shelf computer software. Those are California figures from FTB 3885. They are not federal figures. Federal limits for tax years beginning in 2026 are $2,560,000 / $4,090,000 under Rev. Proc. 2025-32.
California’s January 1, 2025 conformity date does not include Public Law 119-21, which was enacted July 4, 2025. That is why the FTB list still rejects the 2025 federal bonus, enhanced §179, and §168(n) provisions. This page does not restate other California depreciation methods beyond what FTB 3885 states.
This page is educational information, not tax advice. Other states are sometimes described in professional summaries as decoupling from bonus depreciation. Those descriptions have not been confirmed on official state sites for this page, so they are not listed as facts here.
What a federal study still does
The study assigns federal MACRS classes, recovery periods, and the records a CPA needs for Form 4562. State decoupling does not make a 5-year federal component into a 39-year federal component.
On the California return, the CPA may add back federal bonus depreciation and recompute depreciation under California’s methods. The component list remains the starting point for that recomputation.
Do not commission a second “California-only” classification theory that ignores Treas. Reg. §1.48-1. The legal tests for personal property versus structural components are federal. The state question is how much of the federal deduction is allowed.
California figures from FTB 3885
FTB 3885 is the corporation depreciation form. S corporations use Schedule B (100S). The instructions warn that they are a summary of California law and are not authoritative law. The Revenue and Taxation Code controls.
In addition to nonconformity to §168(k), enhanced §179, and §168(n), the instructions list other differences, including luxury-automobile limitations and, for corporations, limits on MACRS except to the extent depreciation is passed through from a partnership or LLC classified as a partnership. Those corporation-specific method rules are beyond a website summary. The taxpayer’s California CPA should apply them.
California also describes its own additional first-year depreciation election under R&TC §24356 (up to 20 percent of qualifying tangible personal property, $2,000 maximum) as an alternative to §179 for the same year. That is a state election, not federal bonus depreciation.
Other states
Oregon, New Mexico, Alaska, and other states are sometimes described in professional summaries as decoupling from bonus depreciation or from parts of Public Law 119-21. Those descriptions have not been confirmed on official state department-of-revenue pages for this page.
F-16 requires general treatment and no state-specific claims without that state’s official source. California FTB 3885 is the only state source in this article’s source list. Other states are therefore named only as examples of what is not being claimed.
State conformity changes by legislation. Recheck the official page for the year of the return. Do not rely on a federal 100 percent bonus rate, as of October 16, 2026, as the state rate.
Practical filing
File federal Form 4562 using federal law. File the state depreciation form using that state’s law. Keep both computations. A study report that shows only federal first-year bonus can surprise an owner who has California tax.
Partnerships and S corporations may pass through federal depreciation that the owner then adjusts on a resident return. Entity type changes who makes the add-back.
This page does not compute a California–federal difference for any property. Ask the CPA who files the state return.
Sources
- 1
- 2
- 3Public Law 119-21 (July 4, 2025), §§70301, 70306, 70307(opens in a new tab)
The 2025 reconciliation law, which the IRS describes as commonly known as the One, Big, Beautiful Bill Act.