Last month the Massachusetts legislature passed the Commonwealth’s 2026-2027 budget (Act) and sent it to Gov. Maura Healey, who enacted it into law on June 12, 2026. Included in the enacted budget are several tax law changes with retroactive and potentially future effects.
Temporary decoupling from the One Big Beautiful Bill Act (OBBBA) business tax provisions
Effective for tax years 2022-2025, domestic Research & Experimental (R&E) deductions permitted under section 174A of the Internal Revenue Code are not permitted for Massachusetts individual and business income tax purposes. Instead, domestic R&E deductions are permitted to the extent allowed under pre-OBBBA law, which required taxpayers to capitalize and amortize them over five years. Also, individuals and businesses are not permitted to take the “super deduction” for Massachusetts purposes equal to their basis in R&E costs at the beginning of their 2025 tax year, nor may small businesses amend their 2022-2024 Massachusetts income tax returns to claim deductions that were previously denied to them under pre-OBBBA law.
Massachusetts has temporarily decoupled from the 100% depreciation deduction on Qualified Production Property placed in service in 2025 and 2026. QPP placed in service in 2025 and 2026 will have to be depreciated under normal MACRS rules.
For tax years beginning in 2025 and 2026, Massachusetts will not follow the federal amendments to section 163(j) under which businesses are required to add back to the interest deduction base depreciation and amortization deductions, thereby potentially increasing their allowable interest deduction. For Massachusetts income tax purposes, the deduction base must still be computed net of federally allowable interest and amortization deductions, potentially lowering the amount of interest that is deductible for state purposes.
Enhanced section 179 Expensing: Massachusetts will not follow the increase in the federal section 179 expensing limit from $1.25 million to $2.5 million for years beginning in 2025 and 2026. Businesses electing to expense the cost of business property purchased during the year will be required to use the inflation-adjusted amounts in effect prior to the enactment of the OBBBA.
Temporary decoupling may become permanent
Under the Act, the above provisions are set to expire for tax years ending after 2025 (R&E Costs) and 2026 (100% QPP depreciation, section 179 expensing and section 163(j) EBIT base). However, if the commonwealth’s voters pass a voter referendum this November providing for a cut to the state’s personal income tax from 5% to 4%, the above decoupling provisions will become permanent, pending action by the state courts and an identification of a replacement for lost revenues.
Limited window of time to correct 2025 filings
Note that these provisions are all retroactive to at least 2025, and 2022 for R&E costs. Since many taxpayers have already filed their 2025 Massachusetts income tax returns and took advantage of OBBBA business deductions which are now denied to them for Massachusetts income tax purposes, they are now required to file amended Massachusetts tax returns to recapture those deductions. Such taxpayers have until September 10, 2026,to file amended returns and pay any increase in tax without also having to pay interest and penalties.
Circuit Breaker provision
Effective for tax years beginning on and after Jan. 1, 2026, Massachusetts will automatically decouple from future changes in federal tax laws unless the Commissioner of Revenue estimates that said changes will not increase or decrease Massachusetts tax revenue by more than $20 million over a rolling average three-year period. The automatic decoupling provision will apply to any taxable year that begins in the calendar year in which the federal amendment is enacted and the immediately preceding taxable year.
New credit for farm businesses
For tax years 2026-2028, businesses engaged in farming may claim a refundable credit of up to $5,000 for the value of donations of food produced by the business to a nonprofit food distribution organization. The credit is not allowed to the extent that the business claims a federal or state income tax deduction for the same food products.
New credit for aviation fuel produced from sustainable sources
Sellers of aviation fuel produced from sustainable sources may be eligible to claim a credit of up to $2 per gallon against their aviation fuels tax liability when the fuel is purchased for use by an aircraft departing a Massachusetts airport. This credit is scheduled to expire after 2029.
Sales tax exemption for building materials used in approved multifamily housing projects
The Act provides for an exemption from sales tax for materials, tools and fuel purchased for consumption and use directly and exclusively in the construction of approved multifamily housing prospects that support housing for low, moderate, and middle-income residents.
If you have any questions about the tax law changes in Massachusetts, please contact your CBIZ SALT team professional.
Frequently Asked Questions
Massachusetts temporarily decouples from several federal OBBBA business tax provisions, including domestic R&E expensing, 100% depreciation for Qualified Production Property, enhanced Section 179 expensing and changes to the Section 163(j) interest deduction calculation.
For tax years 2022-2025, Massachusetts requires taxpayers to follow pre-OBBBA rules that capitalize and amortize domestic R&E costs over five years rather than immediately deducting them.
Potentially. Taxpayers that claimed OBBBA-related business deductions on Massachusetts returns that are now disallowed may need to file amended returns and pay any additional tax.
Taxpayers have until Sept. 10, 2026, to file amended Massachusetts returns and pay any resulting tax liability without incurring interest or penalties.
Yes. The act creates a refundable credit for qualifying farm food donations and a credit for certain sustainable aviation fuel sales, while also establishing a sales tax exemption for materials used in approved multifamily housing projects.
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