The Bottom Line
On June 12, 2026, Governor Maura Healey signed Massachusetts’ supplemental budget bill, H. 5470 into law. Massachusetts is a rolling conformity state, meaning it generally incorporates federal tax law changes for corporate income tax purposes. The bill, however, delays conformity to certain One Big Beautiful Bill Act (OB3) provisions. The relevant provisions are the research and experimental (R&E) expenditures under Internal Revenue Code (IRC) § 174A; the federal business interest expensing limitation under IRC § 163(j); the increased dollar limitation for expensing depreciable business assets under IRC § 179; the special depreciation allowance for qualified production property under IRC § 168(n); the renewed and enhanced opportunity zones provisions under IRC § 1400Z-2; and certain provisions regarding federal taxation of individuals. Additionally, the bill applies the 4% surtax on Massachusetts taxable income over one million dollars to the state’s pass-through entity (PTE) excise tax rate.
R&E Expenditures Under IRC § 174A
Massachusetts decouples from the new OB3 provisions of the IRC §§ 174 and 174A permit the immediate deduction and accelerated recovery of domestic R&E expenditures and the related OB3 transition provisions for the R&E expenditures for the 2022 through 2024 tax years. Accordingly, taxpayers may not claim the federal § 174A deduction, the one-year or two-year transition deductions for remaining unamortized domestic R&E expenditures from the 2022 through 2024 tax years, or the retroactive small-business relief provisions for Massachusetts purposes. Instead, Massachusetts requires taxpayers to deduct R&E expenditures under IRC § 174 as it was in effect on July 3, 2025, which is one day before the passage of OB3, thereby continuing to amortize domestic R&E expenditures. However, Massachusetts will conform to IRC § 174A for tax years beginning on or after January 1, 2026.
Federal Business Interest Expensing Limitation Under IRC § 163(j)
For the 2025 and 2026 tax years, Massachusetts will keep the earnings before interest and taxes (EBIT) basis for the calculation of adjusted taxable income as it existed for federal income tax purposes immediately before OB3’s enactment. However, for the 2027 tax year, Massachusetts will conform to the increase in federal business interest expensing limitation under § 163(j)(8)(A)(v), which includes add-backs for deductions for depreciation, amortization, and depletion.
Increased Dollar Limitation for Expensing Depreciable Assets Under IRC § 179
Massachusetts decouples from the increased dollar limitation for expensing certain depreciable assets under IRC § 179(b) for tax years 2025 and 2026. Instead, Massachusetts will follow the dollar cap under the Tax Cuts and Jobs Act (TCJA) for purposes of expensing certain depreciable assets for tax years 2025 and 2026.
100% Bonus Depreciation Under IRC § 168(k)
The Massachusetts bill does not modify the states treatment of bonus depreciation under IRC § 168(k). Massachusetts has historically decoupled from this provision and continues to require adjustments to eliminate the effect of IRC § 168(k). Accordingly, Massachusetts will continue to decouple from this provision.
Special Depreciation Allowance for Qualified Production Property Under IRC § 168(n)
For the 2025 and 2026 tax years, Massachusetts decouples from the special depreciation allowance for qualified production property under IRC § 168(n). Beginning in 2027, Massachusetts will conform to the special depreciation allowance for qualified production property under IRC § 168(n) which allows businesses to immediately deduct 100% of the cost of eligible qualified production property in the first year it is placed in service instead of using the standard depreciation schedule for nonresidential real property.
Renewed and Enhanced Opportunity Zones Under IRC § 1400Z-2
For tax years beginning in 2025 or 2026, Massachusetts decouples from the renewed and enhanced opportunity zones under IRC § 1400Z-2 and instead uses the TCJA rules. Beginning in 2027, Massachusetts is expected to conform to the new IRC § 1400Z-2 which applies to investments after December 31, 2026.
Changes to the Massachusetts PTET Regime
For tax years beginning on or after January 1, 2026, the bill creates an elective 4% surtax that an eligible pass-through entity (PTE) can elect to be applied to its qualified members’ income that exceeds the Massachusetts’s surtax threshold. Qualified members are allowed a refundable credit limited to 90% of the members’ share of tax paid.
Action Items
The Massachusetts tax legislation provides various updates to the 2025, 2026, and 2027 tax years for businesses and individuals. Contact Forvis Mazars if you have any questions about navigating these updates.