Illinois decoupled from federal bonus depreciation, so we get an offsetting state subtraction each year instead -- but if we can't use the full subtraction amount in one year, can we carry the unused part forward?

Plain-English summary

An accountant asked for written confirmation, with citations, of whether an "unused" Illinois bonus-depreciation subtraction can be carried forward to a future tax year. A Department representative had already told them informally that Illinois doesn't allow this carryforward, but couldn't point to the specific statute -- so the accountant asked the Legal Services Office to confirm in writing.

How Illinois's bonus-depreciation adjustment works. A corporation starts with federal taxable income and applies Illinois-specific modifications (35 ILCS 5/203(b)). Because Illinois has decoupled from federal bonus depreciation, a corporation must ADD BACK the full bonus depreciation deduction it took federally under IRC § 168(k) (35 ILCS 5/203(b)(2)(E-10)). To offset that addback, Illinois then allows a SUBTRACTION (35 ILCS 5/203(b)(2)(T)) computed under a formula that approximates the regular (non-bonus) depreciation the property would have generated -- the formula varies depending on the year and the bonus percentage taken (30/70 ratio for pre-2005 property; different multipliers for 30%, 50%, and 100% bonus depreciation taken after 2005), capped in total at the actual bonus amount claimed on that property.

No standalone carryforward for the unused subtraction. The Illinois Income Tax Act has no provision letting a corporation carry forward an "unused" portion of this (T) subtraction to a later year. If the subtraction can't be fully used against income in the year it applies, that unused portion simply isn't available going forward as its own item.

But it can survive indirectly through the net-loss carryover. If the unused (T) subtraction, combined with everything else, actually produces an overall Illinois net loss for the year, IITA § 207(a)-(b) lets that net loss be carried back or forward the same way a federal net operating loss works under IRC § 172. So to the extent the bonus-depreciation subtraction is reflected in an actual Illinois net loss, it can effectively carry over -- just riding along inside the general net-loss mechanism, not as a subtraction in its own right.

What this means for you

Corporations with large bonus-depreciation add-backs

Model your bonus-depreciation subtraction against your actual income in the year it arises -- don't assume any excess rolls forward automatically. Check whether the excess, combined with your other numbers, produces a genuine Illinois net loss; if so, that loss (not the subtraction itself) is what can carry forward.

Accountants advising clients with heavy federal bonus depreciation

Cite 35 ILCS 5/203(b)(2)(T) directly (rather than relying on informal Department phone guidance) when explaining why an unused bonus-depreciation subtraction doesn't roll forward on its own -- and separately check 35 ILCS 5/207 whenever the numbers might produce a genuine net loss for the year.

Businesses planning the timing of large capital investments

Because the state subtraction that offsets the bonus-depreciation addback isn't independently carryforward-able, the year you place heavily bonus-depreciated property in service matters -- a year with insufficient income to absorb the subtraction wastes it unless it happens to convert into a carryforward-eligible net operating loss instead.

Common questions

Q: Can I carry forward an unused Illinois bonus-depreciation subtraction to next year?
A: No -- there's no provision in the Illinois Income Tax Act allowing that specific subtraction amount to carry forward on its own.

Q: Is there any way an unused bonus-depreciation subtraction can still help in a later year?
A: Yes, indirectly -- if the unused subtraction contributes to an overall Illinois net operating loss for the year, that net loss can be carried back or forward under the ordinary Illinois NOL rules (35 ILCS 5/207), the same way a federal NOL works.

Q: Why does Illinois require adding back federal bonus depreciation in the first place?
A: Illinois decoupled from the federal bonus-depreciation rules; the addback (E-10) combined with the offsetting subtraction (T) is designed to leave the corporation deducting roughly the regular (non-bonus) depreciation amount it would have had absent the federal bonus depreciation law.

Q: Where can I find more detail on how the addback/subtraction mechanics work?
A: Illinois Department of Revenue Informational Bulletin FY 2003-02, available on the Department's website, explains the mechanics in more detail.

Citations and references

Statutes and guidance:

• 35 ILCS 5/203(b), (h) (base income computation; no modifications beyond those expressly provided)
• 35 ILCS 5/203(b)(2)(E-10) (federal bonus depreciation addback)
• 35 ILCS 5/203(b)(2)(T) (Illinois bonus-depreciation subtraction formula)
• 35 ILCS 5/207(a), (b) (Illinois net loss carryback/carryover)
• Illinois Department of Revenue Informational Bulletin FY 2003-02

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2025.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2025/it25-0010-gil.pdf

Original ruling text

IT 25-0010-GIL

9/18/2025

SUBTRACTION MODIFICATIONS – BONUS DEPRECIATION

Illinois bonus depreciation subtraction amounts that are “unused” in a tax year may
not be carried forward to a future tax year. (This is a GIL.)
September 18, 2025
NAME
COMPANY
ADDRESS
EMAIL
Dear NAME:
This letter is in response to your letter dated August 13, 2025, in which you requested
information. The Department issues two types of letter rulings. Private Letter Rulings
(“PLRs”) are issued by the Department in response to specific taxpayer inquiries
concerning the application of a tax statute or rule to a particular fact situation. A PLR is
binding on the Department, but only as to the taxpayer who is the subject of the request for
ruling and only to the extent the facts recited in the PLR are correct and complete. Persons
seeking PLRs must comply with the procedures for PLRs found in the Department’s
regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of
Department policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120.
You may access our website at https://tax.illinois.gov/ to review regulations, letter rulings
and other types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we respond
with a GIL. In your letter you have stated and made inquiry as follows:
I am writing to request a formal written explanation regarding the treatment
of unused Illinois depreciation subtraction amounts arising from federal
bonus depreciation. Although Illinois currently disallows the carryforward of
this loss, we believe the unused depreciation should be eligible to carry
forward, regardless of the fact that it is from depreciation.
Recently, I contacted the Illinois Department of Revenue to clarify whether
an unused Illinois depreciation subtraction can be carried forward to
subsequent tax years. The representative I spoke with indicated, after
research, that Illinois does not allow the carryover of unused depreciation
subtraction related to federal bonus depreciation from year to year, noting
that Illinois decoupled from the federal allowance several years ago.
However, the representative was unable to provide a specific statutory or
regulatory citation to support this position. Therefore, I am requesting that

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September 18, 2025
the Legal Services Office provide a written explanation, including references
to the relevant Illinois statute, administrative code, or official guidance, that
addresses:

1. Whether unused Illinois depreciation subtraction amounts from
   bonus depreciation are eligible for carryforward.
2. The effective date of any change in Illinois law or policy on this
   matter.
3. Any applicable publications or formal rulings that clarify the issue.
   This guidance will help ensure accurate and compliant preparation of Illinois
   income tax returns for our clients.
   DEPARTMENT’S RESPONSE
   Under Section 203(b) of the Illinois Income Tax Act (“IITA”; 35 ILCS 5/203), a corporation
   computes its base income by starting with its federal taxable income and making various
   addition and subtraction modifications. Section 203(h) of the Illinois Income Tax Act
   provides:
   Except as expressly provided by this Section there shall be no modifications or
   limitations on the amounts of income, gain, loss or deduction taken into account in
   determining gross income, adjusted gross income or taxable income for federal
   income tax purposes for the taxable year, or in the amount of such items entering
   into the computation of base income and net income under this Act for such
   taxable year, whether in respect of property values as of August 1, 1969 or
   otherwise.
   For taxable years 2001 and after, IITA Section 203(b)(2)(E-10) requires corporations to add
   back an amount equal to the bonus depreciation deduction taken on the taxpayer’s federal
   income tax return for the taxable year under subsection (k) of Section 168 of the Internal
   Revenue Code (“IRC”). IITA Section 203(b)(2)(T) allows a subtraction for corporations:
   For taxable years 2001 and thereafter, for the taxable year in which the bonus
   depreciation deduction is taken on the taxpayer’s federal income tax return under
   subsection (k) of Section 168 of the Internal Revenue Code and for each applicable
   taxable year thereafter, an amount equal to “x”, where:
   (1) “y” equals the amount of the depreciation deduction taken for the taxable
   year on the taxpayer’s federal income tax return on property for which the

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September 18, 2025
bonus depreciation deduction was taken in any year under subsection (k) of
Section 168 of the Internal Revenue Code, but not including the bonus
depreciation deduction;
(2) for taxable years ending on or before December 31, 2005, “x” equals “y”
multiplied by 30 and then divided by 70 (or “y” multiplied by 0.429); and
(3) for taxable years ending after December 31, 2005:
(i) for property on which a bonus depreciation deduction of 30% of the
adjusted basis was taken, “x” equals “y” multiplied by 30 and then
divided by 70 (or “y” multiplied by 0.429);
(ii) for property on which a bonus depreciation deduction of 50% of
the adjusted basis was taken, “x” equals “y” multiplied by 1.0;
(iii) for property on which a bonus depreciation deduction of 100% of
the adjusted basis was taken in a taxable year ending on or after
December 31, 2021, “x” equals the depreciation deduction that
would be allowed on that property if the taxpayer had made the
election under Section 168(k)(7) of the Internal Revenue Code to not
claim bonus depreciation on that property; and
(iv) for property on which a bonus depreciation deduction of a
percentage other than 30%, 50% or 100% of the adjusted basis was
taken in a taxable year ending on or after December 31, 2021, “x”
equals “y” multiplied by 100 times the percentage bonus
depreciation on the property (that is, 100(bonus%)) and then divided
by 100 times 1 minus the percentage bonus depreciation on the
property (that is, 100(1-bonus%)).
The aggregate amount deducted under this subparagraph in all taxable years
for any one piece of property may not exceed the amount of the bonus
depreciation deduction taken on that property on the taxpayer’s federal
income tax return under subsection (k) of Section 168 of the Internal
Revenue Code. This subparagraph (T) is exempt from the provisions of
Section 250.
The purpose of these addition and subtraction modifications is to de-couple Illinois from
the effects of federal bonus depreciation. The net effect of the additions and subtractions
is to allow a taxpayer to deduct the regular depreciation amount that would have been
allowed on its federal return had the bonus depreciation law not been enacted. (See

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September 18, 2025
Informational Bulletin FY 2003-02, available on the Department’s website, for additional
information.)
There is no provision in the IITA which permits or allows a carryforward of an “unused”
Section 203(b)(2)(T) special depreciation deduction amount. This deduction is merely a
subtraction from the base income of the corporation in the taxable year in which the bonus
depreciation deduction is taken on the taxpayer’s federal income tax return. If the
corporation cannot fully utilize the subtraction against its income in a tax year, the
“unused” subtraction amount is not available to be carried forward to a future tax year.
However, for taxable years ending on or after December 31, 1986, IITA Section 207(a) and
(b), provides that after applying all the modifications provided for in IITA Section 203(b) and
the allocation and apportionment provisions of Article 3 of the IITA, if the corporation has a
net Illinois loss, such net loss is allowed as a carryback or carryover deduction in the same
manner as under IRC Section 172. Therefore, to the extent that a part or all of the
deduction under IITA Section 203(b)(2)(T) is reflected in the Illinois net loss for the tax year
as an “unused depreciation” amount, it would automatically be carried back or forward,
but only to the extent that it might be reflected, if at all, in the Illinois net operating loss
carryback/carryforward.
As stated above, this is a General Information Letter. A General Information Letter does not
constitute a statement of Department policy that applies, interprets or prescribes the tax
laws, and it is not binding on the Department. If you require additional information, please
visit the Department’s website at https://tax.illinois.gov/ or contact the Department’s
Taxpayer Assistance Division at 800-732-8866.
Sincerely,
Jennifer Uhles
Associate Counsel (Income Tax)
JU:se