Appendix A Recent Law Changes Affecting Tax Expenditures

There have not been any recent Massachusetts tax law changes affecting tax expenditures since the Fiscal Year 2026 Tax Expenditure Budget. However, the following tax expenditures have been revised or created due to recent federal tax law changes, more specifically, the One Big Beautiful Bill Act (“OBBBA”).

Personal Income Tax Changes under OBBBA

Extension and Modification of Limitation on Wagering Losses (TE 1.428)

For federal tax purposes, Section 70114 of the OBBBA modifies and limits the amount of gambling losses individuals may deduct from their gambling gains. In addition to the existing rule limiting the deduction of losses to the extent of gains, taxpayers may now deduct only 90% of their losses. Massachusetts allows taxpayers engaged in the trade or business of gambling to deduct their gambling losses incurred at gambling establishments licensed in accordance with M.G.L. c. 23K and other gambling-related expenses on a current Code basis. As a result, Massachusetts conforms to this change for professional gamblers.

Cite: P.L. 119-21, 70114; IRC § 165(d)

Extension and Enhancement of Increased Limitation on Contributions to ABLE Accounts (TE 1.109)

For federal tax purposes, contributions made to ABLE accounts pursuant to Internal Revenue Code (“IRC” or “Code”) § 529A grow tax-deferred and can be withdrawn tax-free if used for qualified disability expenses. Section 70115 of the OBBBA modifies the inflation adjustment formula for determining the annual limit for contributions to an ABLE account. It also makes permanent the increased contribution limit, which is limited to the lesser of the applicable federal poverty level for a one-person household in the prior year, or the beneficiary's compensation for the year. The OBBBA amendment to IRC § 529A is effective for taxable years beginning after December 31, 2025. Massachusetts conforms to IRC § 529A on a current Code basis, so Massachusetts will follow the inflation adjustment formula and the permanently increased contribution limit.

Cite: P.L. 119-21, § 70115; IRC § 529A

Extension of Rollovers from Qualified Tuition Programs to ABLE Accounts Permitted (TE 1.041/1.109)

For federal tax purposes, funds held in 529 College Savings Accounts may now be rolled over to 529A ABLE accounts and maintain their tax-deferred status. The OBBBA amendment to IRC § 529 is effective for taxable years beginning after December 31, 2025. Massachusetts conforms to IRC § 529 on a current Code basis, so Massachusetts will allow these rollovers to maintain their tax-deferred status as well.

Cite: PL 119-21, § 70117; IRC § 529

Full Expensing of Domestic Research and Experimental Expenditures (TE 1.309)

For federal tax purposes, individuals may deduct domestic research or experimental costs for expenses paid or incurred by the taxpayer in the course of operating a trade or business for the taxable year in which such costs are paid or incurred. A taxpayer may elect to amortize these expenditures over a 5-year period or 10-year period. Foreign research or experimental costs are amortized over 15 years. The OBBBA amendment to IRC § 174A is effective for taxable years beginning after December 31, 2024.

Transition rules in OBBBA, but not codified in IRC § 174A, allow small business taxpayers with annual gross receipts of $31 million or less to retroactively deduct the full amount of domestic research or experimental costs paid or incurred for taxable years beginning between January 1, 2022 and December 31, 2024. Taxpayers may elect to deduct any remaining expenditures over a one-year period or ratably over a two-year period.

Massachusetts conforms to trade or business expense deductions in the current IRC for personal income tax purposes, so full expensing of research and experimental expenses will also be available at the state level. Note that since the transition rules are not codified in IRC § 174A, Massachusetts does not conform to the retroactive deductions mentioned above for taxable years beginning between January 1, 2022 and December 31, 2024.

Cite: PL 119-21, § 70302; IRC § 174A

Increased Dollar Limitations for Expensing of Certain Depreciable Business Assets (TE 1.305)

For federal tax purposes, the expense limitation for § 179 property has been increased from $1,000,000 to $2,500,000. This limitation is reduced once the property is placed in service and has a cost exceeding a specific amount. This specific amount has been increased from $2,500,000 to $4,000,000, i.e., the expense limitation deduction is further reduced by the cost of the property in service over $4,000,000. The inflation adjustment formula for increasing these dollar amounts has been modified by using 2024 as the base year, rather than 2017. The OBBBA amendments to IRC § 179 are effective for property placed into service in taxable years beginning after December 31, 2024. Massachusetts conforms to trade and business deductions on a current Code basis, so these increased dollar limitations will apply at the state level as well.

Cite: PL 119-21, § 70306; IRC § 179

Special Depreciation Allowance for Qualified Production Property (TE 1.303)

For federal tax purposes, taxpayers may obtain a 100% depreciation deduction for qualified production property in the year it is placed in service. Qualified production property is non-residential real property elected by the taxpayer to be treated as such and is (1) used by the taxpayer as an integral part of a qualified production activity in the US, (2) originally used by the taxpayer, (3) constructed after January 19, 2025 and before January 1, 2029, and (4) placed into service before January 1, 2031. A taxpayer can meet the original use requirement if the property was not used in a qualified production activity between January 1, 2025 and May 12, 2025. The adjusted basis of the qualified production property is reduced by the amount of such deduction. The OBBBA amendments to IRC § 168, i.e., adding subsection (n), are effective for property placed into service after July 4, 2025. Massachusetts conforms to trade and business deductions on a current Code basis, so this special deprecation allowance for qualified production property is also available at the state level.

Cite: PL 119-21, § 70307; IRC § 168(n)

Permanent Extension of Look-Through Rule for Related Controlled Foreign Corporations (CFCs)

Tax expenditure status is under review.

Cite: PL 119-21, § 70351; IRC § 954(c)

Additional Expenses Treated as Qualified Higher Education Expenses for Purposes of 529 Accounts (TE 1.041)

The expenses allowed for 529 College Savings Accounts that permit exclusion of interest earned from federal taxation have been expanded to include additional educational opportunities. The OBBBA amendments to IRC § 529 are effective for taxable years beginning after December 31, 2025. Since Massachusetts conforms to IRC § 529 on a current Code basis, the additional expenses will be allowed at the state level, which will potentially cause more earned interest to be excluded from Massachusetts tax.

Cite: PL 119-21, § 70413; IRC § 529

Treatment of Certain Qualified Sound Recording Production

Tax expenditure status is under review.

Cite: PL 119-21, § 70434; IRC § 181

Termination of Energy-Efficient Commercial Buildings Deduction

Tax expenditure status is under review.

Cite: PL 119-21, § 70507; IRC § 179D

Termination of Cost Recovery for Energy Property (TE 1.304)

For federal tax purposes, the ability to depreciate natural gas distribution lines under the accelerated cost recovery system has been eliminated. The OBBBA amendments to IRC § 168(e) are effective for property constructed after December 31, 2024. Massachusetts conforms to trade or business expense deductions in the current IRC for personal income tax purposes; therefore, this deduction will no longer be allowed at the state level.

Cite: PL 119-21, § 70509; IRC § 168(e)(3)(B)(vi)

Excessive Employee Remuneration from Controlled Group Members and Allocation of Deduction

Tax expenditure status is under review.

Cite: PL 119-21, § 70603; IRC § 162(m)

Corporate Excise Tax Changes under OBBBA

Full Expensing of Domestic Research and Experimental Expenditures (TE 2.308)

For federal tax purposes, individuals may deduct domestic research or experimental costs for expenses paid or incurred by the taxpayer in the course of operating a trade or business for the taxable year in which such costs are paid or incurred. A taxpayer may elect to amortize these expenditures over a 5-year period or 10-year period. Foreign research or experimental costs are amortized over 15 years. The OBBBA amendment to IRC § 174A is effective for taxable years beginning after December 31, 2024.

Transition rules in OBBBA, but not codified in IRC § 174A, allow small business taxpayers with annual gross receipts of $31 million or less to retroactively deduct the full amount of domestic research or experimental costs paid or incurred for taxable years beginning on or after January 1, 2022 and December 31, 2024. Taxpayers may elect to deduct any remaining expenditures over a one-year period or ratably over a two-year period.

Massachusetts conforms to trade or business expense deductions on a current Code basis for corporate excise purposes, so full expensing of research and experimental expenses will also be available at the state level. Note that since the transition rules are not codified in IRC § 174A, Massachusetts does not conform to the retroactive deductions mentioned above for taxable years beginning between January 1, 2022 and December 31, 2024.

Cite: PL 119-21, § 70302; IRC § 174A

Increased Dollar Limitations for Expensing of Certain Depreciable Business Assets (TE 2.306)

For federal tax purposes, the expense limitation deduction amount for § 179 property has been increased from $1,000,000 to $2,500,000. This limitation is reduced once the property is placed in service and has a cost exceeding a specific amount. This specific amount has been increased from $2,500,000 to $4,000,000, i.e., the expense limitation deduction is further reduced by the cost of the property in service over $4,000,000. The inflation adjustment formula for increasing these dollar amounts has been modified by using 2024 as the base year, rather than 2017. The OBBBA amendments to IRC § 179 are effective for property placed into service in taxable years beginning after December 31, 2024. Massachusetts corporate excise conforms to the current IRC, so these increased dollar limitations will apply at the state level as well.

Cite: PL 119-21, § 70306; IRC § 179

Special Depreciation Allowance for Qualified Production Property (TE 2.307)

For federal tax purposes, taxpayers may obtain a 100% depreciation deduction for qualified production property in the year it is placed in service. Qualified production property is non-residential real property elected by the taxpayer to be treated as such and is (1) used by the taxpayer as an integral part of a qualified production activity in the US, (2) originally used by the taxpayer, (3) constructed after January 19, 2025 and before January 1, 2029, and (4) placed into service before January 1, 2031. A taxpayer can meet the original use requirement if the property was not used in a qualified production activity between January 1, 2025 and May 12, 2025. The adjusted basis of the qualified production property shall be reduced by the amount of such deduction. The OBBBA amendments to IRC § 168(n) are effective for property placed into service after July 4, 2025. Massachusetts corporate excise conforms to the current IRC, so this special deprecation allowance for qualified production property is also available at the state level.

Cite: PL 119-21, § 70307; IRC § 168(n)

Permanent Extension of Look-Through Rule for Related Controlled Foreign Corporations (CFCs)

Tax expenditure status is under review.

Cite: PL 119-21, § 70351; IRC § 954(c)

Restoration of Limitation on Downward Attribution of Stock Ownership in Applying Constructive Ownership Rules

Tax expenditure status is under review.

Cite: PL 119-21, § 70353; IRC § 951B (New Code section)

Permanent Renewal and Enhancement of Opportunity Zones (TE 2.102)

For federal tax purposes, the basis of the investments made in qualified opportunity zones will be increased by 10% (30% for rural areas) of the amount of gain deferred if the investments are held for at least 5 years. The OBBBA amendments to IRC § 1400Z-2 are effective for investments made in taxable years after December 31, 2026. Since Massachusetts conforms to the current Code for corporate excise purposes, this step-up in basis will also apply in Massachusetts.

Cite: PL 119-21, § 70421; IRC § 1400Z-2

One-Percent Floor on Deduction of Charitable Contributions Made by Corporations (TE 2.201)

For federal tax purposes, corporations may now only deduct the amount of charitable contributions that exceed 1% of their taxable income. The OBBBA amendments to IRC § 170(b) are effective after December 31, 2025. Massachusetts conforms to the current IRC for corporate excise purposes, so this new floor will also apply in Massachusetts.

Cite: PL 119-21, § 70426; IRC § 170(b)

Non-Profit Community Development Activities in Remote Native Villages

Tax expenditure status is under review.

Cite: PL 119-21, § 70428; IRC § 170(n)

Treatment of Certain Qualified Sound Recording Production

Tax expenditure status is under review.

Cite: PL 119-21, § 70434; IRC § 181

Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property

Tax expenditure status is under review.

Cite: PL 119-21, § 70435; IRC § 139L

Restoration of Taxable REIT Subsidiary Asset Test

Tax expenditure status is under review.

Cite: PL 119-21, § 70439; IRC § 856(c)

Termination of Energy-Efficient Commercial Buildings Deduction

Tax expenditure status is under review.

Cite: PL 119-21, § 70507; IRC § 179D

Termination of Cost Recovery for Energy Property (TE 2.305)

For federal tax purposes, the ability to depreciate natural gas distribution lines under the accelerated cost recovery system has been eliminated. The OBBBA amendments to IRC § 168(e) are effective for property constructed after December 31, 2024. Massachusetts conforms to the current IRC for corporate excise purposes; therefore, this deduction will no longer be allowed at the state level.

Cite: PL 119-21, § 70509; IRC § 168(e)(3)(B)(vi)

Excessive Employee Remuneration from Controlled Group Members and Allocation of Deduction

Tax expenditure status is under review.

Cite: PL 119-21, § 70603; IRC § 162(m)