Florida Excludes Federal Bonus Depreciation, R&E Expensing, and Other Business Tax Changes From Corporate Income Tax Conformity

Florida lawmakers have enacted legislation preventing the state from automatically conforming to several significant federal business tax provisions adopted as part of the 2025 federal tax legislation. House Bill 7031, signed by Governor Ron DeSantis, updates Florida’s corporate income tax conformity date to January 1, 2026, while simultaneously excluding specified federal amendments from Florida’s definition of the Internal Revenue Code.

As a result, Florida corporate taxpayers may be required to disregard certain favorable federal tax provisions when calculating Florida taxable income. The legislation excludes specified federal amendments affecting research and experimental expenditures, bonus depreciation, business interest deductions, Section 179 expensing, business meal deductions, qualified production property, and domestic research expenditures.

The legislation represents one of the most significant Florida corporate income tax developments of 2026 and reinforces Florida’s willingness to depart from federal tax policy when lawmakers determine conformity would have a substantial impact on state revenues.

Florida’s Corporate Income Tax Conformity System

Florida generally uses federal taxable income as the starting point for computing Florida corporate income tax. Because Florida begins with federal taxable income, federal tax law changes often flow automatically into the Florida tax base unless the Legislature takes action to decouple from specific provisions.

This conformity system simplifies tax administration in many circumstances because taxpayers can rely upon a common federal starting point. However, it also means that federal tax legislation can have substantial consequences for Florida tax revenues.

When Congress enacts new deductions, accelerated cost recovery provisions, or other tax incentives, those changes may reduce Florida corporate income tax collections unless the Legislature affirmatively decouples from the affected provisions.

H.B. 7031 updates Florida’s conformity date to January 1, 2026, but specifically excludes amendments made by the 2025 federal legislation to Internal Revenue Code Sections 174(a), 168(k), 163(j), 179, and 274. The legislation also excludes newly created Sections 168(n) and 174A. Consequently, Florida taxpayers may be required to calculate Florida taxable income without regard to those federal changes even though the provisions remain applicable for federal income tax purposes.

Why Florida Enacted H.B. 7031

The legislation was driven primarily by revenue concerns.

During legislative debate, lawmakers cited projections showing that conformity to the newly enacted federal provisions could result in billions of dollars of reduced state revenue over the coming years. Legislative discussions referenced budget forecasts projecting future deficits and emphasized the importance of maintaining revenue stability.

During legislative consideration of H.B. 7031, lawmakers expressed concern regarding the potential revenue impact of automatic conformity to the newly enacted federal provisions. Rather than adopt the federal provisions and absorb the resulting revenue reductions, lawmakers elected to preserve Florida’s existing corporate income tax structure. 

Federal Research and Experimental Expenditures Under Section 174

One of the most significant provisions affected by H.B. 7031 involves amendments made to Internal Revenue Code Section 174(a). The legislation excludes the federal amendments to Section 174(a) enacted as part of the 2025 federal legislation, preventing those changes from flowing automatically into Florida’s corporate income tax base.

Historically, the treatment of research expenditures has been the subject of substantial federal tax policy debate. Recent federal legislation modified the treatment of these expenditures, creating more favorable deduction opportunities for taxpayers engaged in research activities.

Florida lawmakers determined that adopting the new federal treatment would have a significant impact on state revenues. As a result, H.B. 7031 specifically decouples Florida from the new federal treatment provided under Section 174(a).

For Florida corporate income tax purposes, taxpayers may therefore need to make adjustments to federal taxable income when calculating Florida taxable income.

Businesses engaged in manufacturing, software development, engineering, biotechnology, and other research-intensive industries should carefully evaluate the impact of these differences.

Federal Bonus Depreciation Under Section 168(k)

The legislation also excludes federal amendments made to Internal Revenue Code Section 168(k), commonly known as the bonus depreciation provision.

Bonus depreciation has long served as a federal incentive designed to encourage capital investment by allowing businesses to recover the cost of qualifying property more rapidly than under traditional depreciation schedules. H.B. 7031 does not reject Section 168(k) in its entirety. Rather, it excludes the amendments made to Section 168(k) by the 2025 federal legislation from Florida conformity.

Federal lawmakers expanded or modified bonus depreciation treatment as part of the 2025 federal legislation. Florida, however, declined to follow those changes.

As a result, taxpayers claiming enhanced federal bonus depreciation deductions may be required to reverse some or all of those benefits for Florida corporate income tax purposes.

This divergence creates additional compliance obligations and may require separate depreciation tracking for federal and Florida tax reporting purposes.

Businesses making significant investments in equipment, machinery, technology infrastructure, or other depreciable assets should review how the decoupling provisions affect future tax filings.

Business Interest Deduction Limitation Under Section 163(j)

Florida also excludes amendments made by the 2025 federal legislation to the business interest deduction limitation contained in Internal Revenue Code Section 163(j). As a result, taxpayers may encounter differences between federal and Florida treatment of business interest deductions.

Section 163(j) has become increasingly important for businesses that utilize debt financing. The provision limits the deductibility of business interest expense and has undergone numerous revisions in recent years.

The 2025 federal legislation altered the operation of these rules. Under H.B. 7031, Florida will not automatically adopt those federal changes.

Consequently, taxpayers may need to compute interest deduction limitations differently for federal and Florida tax purposes.

This issue may be particularly important for real estate companies, private equity-backed businesses, highly leveraged enterprises, and other taxpayers with substantial interest expense.

Section 179 Expensing

The legislation further excludes federal amendments made to Internal Revenue Code Section 179. Section 179 allows businesses to immediately deduct the cost of qualifying property rather than recovering those costs over time through depreciation. By excluding the 2025 federal amendments, Florida preserves its existing treatment rather than automatically adopting the newly enacted federal changes.

For Florida corporate income tax purposes, taxpayers may therefore encounter differences between federal and Florida treatment of capital expenditures.

Businesses should carefully analyze acquisition plans and evaluate whether state-level adjustments will be required.

Business Meals Under Section 274

H.B. 7031 also excludes amendments made by the 2025 federal legislation to Internal Revenue Code Section 274 relating to business meal deductions. Consequently, taxpayers should not assume that favorable federal treatment automatically applies for Florida corporate income tax purposes.

Although often receiving less attention than depreciation or research deductions, meal deduction rules can produce substantial tax consequences for certain industries.

The legislation prevents automatic conformity to newly enacted federal business meal deduction provisions.

Companies with significant entertainment, hospitality, travel, or client development expenditures should review the impact of these changes on Florida tax reporting.

New Federal Qualified Production Property Deduction Under Section 168(n)

In addition to excluding amendments to existing federal provisions, H.B. 7031 also prevents Florida from automatically adopting certain newly created federal deductions. One example is the qualified production property deduction contained in Internal Revenue Code Section 168(n).

Rather than waiting for future revenue impacts to materialize, lawmakers elected to expressly prevent automatic conformity to the new deduction.

This approach provides certainty regarding Florida’s tax treatment and avoids future disputes regarding whether the deduction flows through to Florida taxable income.

New Domestic Research and Experimental Expenditure Deduction Under Section 174A

The legislation similarly excludes newly enacted Internal Revenue Code Section 174A from Florida conformity. Section 174A provides federal tax treatment for certain domestic research and experimental expenditures, but Florida taxpayers will not automatically receive the benefit of those provisions when calculating Florida corporate income tax.

This provision represents another example of Florida proactively excluding federal incentives that lawmakers believed could significantly affect state revenue collections.

Taxpayers engaged in domestic research activities should pay close attention to future Florida guidance concerning implementation of these adjustments.

Practical Implications for Florida Corporate Taxpayers

The most immediate consequence of H.B. 7031 is increased divergence between federal and Florida taxable income calculations.

Businesses that previously relied upon federal conformity may now need to maintain separate state-level calculations addressing:

• Bonus depreciation adjustments.
• Research expenditure adjustments.
• Business interest deduction adjustments.
• Section 179 expensing differences.
• Meal deduction modifications.
• Future production property deductions.
• Future domestic research expenditure deductions.

While these adjustments are common in state taxation, they nevertheless increase compliance complexity and administrative burdens.

Tax departments and outside advisors should review accounting systems, depreciation schedules, and tax provision processes to ensure these differences are properly tracked.

Looking Ahead

Florida’s decision to decouple from several federal business tax provisions reflects a continuing trend among states balancing tax competitiveness against revenue preservation.

Although conformity often promotes simplicity, lawmakers concluded that adopting the 2025 federal provisions would create unacceptable fiscal consequences for the state.

As a result, Florida corporate taxpayers should expect continued divergence between federal and Florida tax calculations in several important areas.

Businesses operating in Florida should monitor future guidance from the Florida Department of Revenue and evaluate how the new adjustments affect tax compliance, estimated tax payments, deferred tax accounting, and long-term planning strategies.

For many taxpayers, the enactment of H.B. 7031 will require more than a simple return adjustment. It may necessitate ongoing tracking of federal and Florida differences for years to come.