Overview
Note: This content has been updated in accordance with TIR 26-4 and Working Draft TIR: Tax Provisions in the Fiscal Year 2026 Final Mid-Year Supplemental Appropriation Bill
Massachusetts generally follows the Internal Revenue Code (IRC) as currently in effect for Massachusetts corporate excise tax purposes.
The following is a summary of the most common differences between the IRC and Massachusetts tax code for corporate excise tax purposes. This list is not all inclusive and will be updated regularly.
Federal Deductions Disallowed by Massachusetts
- Bonus Depreciation allowed as a federal deduction under IRC § 168(k) is not allowed as a deduction for purposes of determining Massachusetts taxable net income. Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 168(k). The adjustment may result in an addition to, or a subtraction from, taxable net income. The Massachusetts adjusted basis of depreciable property is also determined without regard to IRC § 168(k).
- For taxable years beginning on or after January 1, 2025, but before January 1, 2027, Massachusetts does not allow the federal deduction for the bonus depreciation of qualified production property under IRC § 168(n). Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 168(n). The adjustment may result in an addition to, or a subtraction from, taxable net income. The Massachusetts adjusted basis of depreciable property is also determined without regard to IRC § 168(n).*
- For taxable years beginning on or after January 1, 2025, but before January 1, 2027, Massachusetts does not allow the increased dollar limitations to the federal deduction for expensing of qualifying equipment, software, or property financed or purchased during the tax year under IRC § 179. Public Law No. 119-21 (P.L. 119-21) increased the expense limitation for Code § 179 property from $1 million to $2.5 million and increased the amounts applicable to the reduction and phase-out from $2.5 million to $4 million. Taxpayers must adjust their taxable net income to apply the limitations in IRC § 179 as amended and in effect on July 3, 2025. The adjustment may result in an addition to, or a subtraction from, taxable net income. The Massachusetts adjusted basis of depreciable property is also determined by applying the deductions allowed under IRC § 179 as amended and in effect on July 3, 2025.*
- Massachusetts does not allow the federal first-year expensing of research and experimental expenses available under IRC § 174A for taxable years beginning on or after January 1, 2025, but before January 1, 2026. Taxpayers must adjust their taxable net income to eliminate the effect of first-year expensing taken under IRC § 174A. The adjustment may result in an addition to, or a subtraction from, taxable net income. Further, Massachusetts does not follow the federal transition rules under P.L. 119-21, § 70302(f) for the deduction of research and experimental expenses paid for taxable years 2022 through 2024.*
- Consequently, Massachusetts requires that research and experimental expenses incurred in taxable years 2022 through 2025 continue to be amortized under IRC § 174 as amended and in effect on July 3, 2025. The Massachusetts adjusted basis of depreciable property is also determined using the depreciation and amortization schedule under IRC § 174 as amended and in effect on July 3, 2025.*
- For taxable years beginning on or after January 1, 2025, but before January 1, 2027, Massachusetts does not follow the amendments made to the definition of “adjusted taxable income” under IRC § 163(j). P.L. 119-21 adjusted the definition of “adjusted taxable income” under IRC § 163(j) to mean the taxable income computed without regard to any deduction allowable for depreciation, amortization, or depletion. Massachusetts does not conform to this definition of adjusted taxable income. Taxpayers must recalculate their adjusted taxable income, including amounts deducted for federal tax purposes for depreciation, amortization, and depletion, before calculating the cap on their business interest expense deduction.*
- For taxable years beginning on or after January 1, 2025, the qualified opportunity zone tax incentives can only be claimed only if the qualified opportunity zone is located entirely within the Commonwealth. For taxable years beginning on or after January 1, 2025, but before January 1, 2027, the treatment of exclusions from gross income under IRC § 1400Z-2 relative to qualified opportunity zones is determined under IRC § 1400Z-2 as it was in effect for taxable years prior to January 1, 2026. Where the qualified opportunity zone is not fully within the Commonwealth, taxpayers must adjust their gross income to eliminate the effects of P.L. 119-21’s amendments to IRC § 1400Z-2. The adjustment may result in an addition to, or a subtraction from, taxable gross income.*
*For more information on these updates, see the Working Draft TIR: Tax Provisions in the Fiscal Year 2026 Final Mid-Year Supplemental Appropriation Bill.
- 1099-K reporting threshold for federal purposes was increased by P.L. 119-21 to $20,000 or 200 transactions. The Massachusetts 1099-K reporting threshold remains at $600. For all other 1099 forms, Massachusetts conforms to the federal thresholds.
- Foreign-Derived Deduction Eligible Income allowed as a federal deduction under IRC § 250 is not allowed as a deduction for purposes of determining Massachusetts taxable net income. Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 250. The adjustment may result in an addition to, or a subtraction from, taxable net income.
- Income, Franchise and Capital Stock Taxes imposed by foreign countries, states (including Massachusetts) and political subdivisions of states are not allowed as a deduction for purposes of determining taxable net income. Such taxes allowed as a federal deduction must be added back to federal gross income when computing Massachusetts taxable net income. Taxes subject to the addback include net income taxes, gross income taxes, margin taxes, business privilege taxes, capital stock taxes and net worth taxes. The addback does not apply to taxes on discrete items (such as local taxes imposed on specific property) or discrete transactions (such as sales taxes and payroll taxes).
- Massachusetts does not allow the dividends-received deduction that is allowed under the IRC. However, a Massachusetts deduction is allowed for 95% of the value of dividends received from corporations, so long as the recipient directly owns 15% or more of the payor’s voting stock. The Massachusetts deduction is not allowed for deemed or actual distributions (except actual distributions of previously taxed income) from a DISC which is not wholly-owned.
- Interest and royalties paid to related parties may be disallowed as a deduction in Massachusetts despite being deductible for federal tax purposes.
- State and municipal bond interest is excluded from federal gross income but included in Massachusetts gross income under M.G.L. c. 63, § 30.3.
- The amount claimed as a Massachusetts research credit may not be claimed as a deduction. The amount of research expenses that qualify for the credit must be added to federal taxable income when determining Massachusetts taxable net income. However, a Massachusetts deduction is allowed for amounts disallowed as a federal deduction due to the taxpayer claiming the federal research credit.
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