The Delaware Senate has passed House Bill 255 (HB 255), a bill that will decouple from certain federal tax rules related to accelerated depreciation and domestic research and experimental expenditures.
- Accelerated Depreciation
Under federal law, businesses can take significant first-year deductions such as bonus depreciation. OBBBA reinstated 100% bonus depreciation effective January 19, 2025, for several asset classes and added an asset class for “qualified production property” also eligible for bonus deprecation.
HB 255 moves Delaware away from those federal rules as follows:
- Decouples from the OBBBA provisions for 100% bonus depreciation of certain business property acquired and placed in service after January 19, 2025, for C corporations and after December 31, 2025, for individuals, S corporations, and partnerships.
- Decouples from the special depreciation allowance for qualified production property for C corporations immediately and decouples after December 31, 2025, for individuals, S corporations, and partnerships.
- Research & Experimental (R&E) Expenditures
Under prior federal law, businesses capitalized and amortized domestic R&E expenses over five years. OBBBA permanently restored the immediate full expensing of domestic R&E costs after December 31, 2024.OBBBA also provided options for handling domestic R&E expenses that were previously capitalized, including an election to deduct any remaining unamortized balances in 2025 or ratably over 2025 and 2026. Eligible small businesses can also elect to file amended returns and retroactively expense R&E costs.
HB 255 again moves Delaware away from federal rules as follows:
- For corporations only, decouples from the OBBBA provisions allowing immediate expensing of domestic R&E expenses and require them to continue to capitalize and amortized over five years. It also disallows the retroactive claw back of past capitalized expenses.
The key takeaway is that both provisions do not eliminate deductions—they simply alter the timing of the deduction for Delaware purposes.
What does this mean for businesses?
- Higher Delaware taxable income in year one because accelerated deductions are not allowed at the state level.
- Lower Delaware taxable income in later years as those deductions are taken over time.
What is the impact on planning?
- Estimated Delaware tax payments will fluctuate with the timing differences of the applicable deductions.
- Update budgeting, cash-flow, and forecasting to reflect the new timing of deductions between federal and state taxable income and the related tax implications.
- Businesses planning capital expenditures and R&E spending should consider the federal vs. Delaware impacts to avoid surprise state tax liabilities.
Who Will Be Most Affected?
- Manufacturers, tech companies, engineering firms, and life-sciences companies with heavy R&E spending
- Businesses planning large equipment purchases or capital projects
- Corporations or pass-through entities within Delaware or with Delaware apportioned income
Delaware still confirms to the federal Section 179 rules.
We will continue monitoring HB 255 and any related regulations for further guidance.
