That equipment write-off you claimed on your federal return? Starting with tax year 2027, New Mexico wants most of it back — at least if you file as a C corporation. In March 2026, the state enacted Senate Bill 151, which deliberately breaks away from three of the federal government's most generous business tax breaks: 100% bonus depreciation, 100% expensing for new manufacturing facilities, and the looser cap on deducting business interest. The state's own revenue department expects the split to be worth $111 million to $121 million a year once fully in effect.
If you run a pass-through business — a sole proprietorship, partnership, LLC, or S corporation — the headline is mostly good news: the decoupling sits in the corporate income tax, and your personal return keeps following the federal rules. But "mostly" is doing real work in that sentence. Here is exactly what changed, who has to recompute what, and the year-end moves worth making before the January 1, 2027 effective date.
Why New Mexico Had to Act: Rolling Conformity
New Mexico is a rolling conformity state, which means new federal corporate tax provisions flow into the state tax code automatically unless lawmakers vote to reject them. When Congress passed the 2025 federal budget reconciliation bill (Public Law 119-21, the One Big Beautiful Bill Act), its business tax cuts landed in Santa Fe without anyone lifting a finger — and state forecasters estimated the corporate revenue loss at $140 million to $145 million.
SB 151, signed March 11, 2026, is the legislature's answer: decouple from the three costliest corporate provisions while conforming to one international provision that raises revenue. The decoupling pieces apply to tax years beginning on or after January 1, 2027, so calendar-year filers feel them first on the 2027 return filed in 2028. Nothing changes on your 2026 return.
The Three Breaks New Mexico Rejected
1. First-year bonus depreciation (Section 168(k))
The federal law restored permanent 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Buy a $200,000 machine, deduct $200,000 this year.
Starting in 2027, New Mexico corporate filers must add back to state taxable income any 168(k) deduction exceeding what regular depreciation under Sections 168(a) through 168(j) would have allowed. In plain terms: you still get the normal MACRS depreciation schedule for state purposes, but the first-year "bonus" slice gets added back to your New Mexico base income. This is the biggest of the three provisions by far — the Taxation and Revenue Department estimates it alone is worth about $80 million a year to the state — and it puts New Mexico in the majority camp nationally, since most states had already decoupled from federal bonus depreciation permanently.
2. First-year expensing for manufacturing facilities (Section 168(n))
The federal law created a new temporary 100% write-off for qualified production property — essentially new manufacturing buildings. New Mexico decoupled from this one too, using the same add-back mechanic: deduct the excess over regular depreciation federally, add it back for state purposes. The state's reasoning is blunt and worth understanding: there is no legal way to limit the federal deduction to factories actually built in New Mexico, so conforming would mean subsidizing manufacturing investment anywhere in the country.
3. The looser business interest cap (Section 163(j))
Federal law limits business interest deductions to 30% of adjusted taxable income (ATI) plus business interest income and floor-plan financing interest. The reconciliation bill sweetened the formula: for tax years beginning after December 31, 2024, ATI is computed on an EBITDA basis again, adding back depreciation, amortization, and depletion — which raises the cap and lets leveraged companies deduct more interest.
New Mexico will keep computing ATI the old, tighter way — on an EBIT basis, with no add-back for depreciation and amortization — for tax years beginning on or after January 1, 2027. Any extra interest disallowed under the state formula can be carried forward indefinitely under the same Section 163(j)(2) rules the federal code uses, so the deduction is delayed rather than destroyed.
One important qualifier: Section 163(j) only applies to businesses averaging more than about $30 million in gross receipts (the inflation-adjusted small-business exemption) plus tax shelters. If your company is below that line, this third provision does not touch you at either level.
The conforming piece: foreign earnings (NCTI)
Running the other direction, SB 151 eliminates New Mexico's deduction for net CFC tested income under Section 951A, pulling the foreign earnings of controlled foreign corporations into the state corporate base — with the CFCs' apportionment factors included so the income can be properly sourced. This one matters only if your company owns foreign subsidiaries. For a domestic small business, file it under "good to know, does not apply."
Who Actually Has to Recompute
This is where the bill surprises people, so here is the breakdown by entity type:
C corporations: yes, all three provisions. If your corporation claims bonus depreciation, factory expensing, or is large enough to face the interest cap, your 2027 New Mexico return needs the add-back computations. You will effectively keep two depreciation schedules going forward — a federal one and a New Mexico one — because the state number diverges from the federal number starting in 2027.
Sole proprietors, partnerships, LLCs, and S corporations: no add-back on your personal return. The decoupling sections amend the corporate income tax. Your New Mexico personal income tax starts from federal adjusted gross income, which already reflects the federal bonus and interest deductions — and SB 151 adds no personal-side add-back. You keep the full federal benefit on your state return too.
Pass-through entities that elect the entity-level tax: no change to the election math. New Mexico lets partnerships, S corporations, and eligible LLCs pay a 5.9% entity-level tax as a workaround to the federal SALT deduction cap, with owners claiming a credit. That regime lives in a separate part of the code (Section 7-3A) that SB 151 did not touch, so the computation works the same in 2027. One structural detail already handled this cleanly: income allocable to a corporate owner that reports it on a New Mexico corporate return is excluded from the entity-level base — so the add-backs land on the corporate owner's return, exactly where they belong.
Corporate partners and owners: yes, on the corporate return. If a C corporation owns part of your partnership, its share of the decoupled deductions gets adjusted on its own corporate filing.
What the Dollars Look Like
New Mexico's top corporate and personal rate is 5.9%, which makes the arithmetic easy. Take a C corporation that buys $200,000 of five-year equipment in 2027 and claims 100% federal bonus depreciation. Regular first-year MACRS on that asset would be roughly $40,000, so the company adds back about $160,000 to its New Mexico base income — roughly $9,400 of additional state tax in year one compared with full conformity.
Before you wince: this is a timing difference, not a lost deduction. In later years, the math reverses automatically. Once the asset is fully written off federally, your federal depreciation on it drops to zero while the state formula still allows the regular MACRS amounts — so the "excess" turns negative and flows back to you as subtractions in those years. You pay sooner; you do not pay more over the asset's life. The real cost is the time value of money plus the bookkeeping burden of tracking two schedules.
What SB 151 Deliberately Left Alone
Decoupling bills are defined as much by what they skip. Three things small businesses care about survived untouched:
Section 179 expensing is intact. SB 151 decoupled from bonus depreciation under 168(k) but not from Section 179, which lets businesses expense qualifying equipment purchases up to a generous federal limit. For many small C corporations, Section 179 covers the entire equipment budget anyway — which means the bonus decoupling may never bite if you plan purchases around the 179 limits instead. This is the single most useful planning takeaway in the bill.
The high-wage jobs credit got a new lease on life. The credit — which can apply against withholding, gross receipts, and compensating taxes — was set to stop covering jobs created after July 1, 2026. SB 151 extends eligibility to jobs created before July 1, 2036. If you are hiring in New Mexico, that runway just got ten years longer.
New targeted credits arrived. The same bill creates a refundable 30% local journalist wage credit (capped at $4 million statewide per year), a $10,000 physician income tax credit (nonrefundable, three-year carryforward, for doctors providing at least 1,584 hours of in-state care), and wage-based credits for local news printers (capped at $1 million aggregate annually) — all running 2027 through 2032. None of these is broadly available, but if you run a local news organization or a medical practice, they are worth pricing into your 2027 forecast.
Your 2026 Year-End Checklist
Because the decoupling starts with tax years beginning January 1, 2027, anything placed in service during calendar 2026 still gets full New Mexico conformity. That creates a short, genuine planning window:
- Accelerate equipment into service before year-end. Qualifying property placed in service in 2026 gets 100% bonus treatment on both your federal and New Mexico 2026 returns — no add-back, ever, for that asset. If you were weighing a 2026 versus 2027 purchase, the state tax difference now tips the scale toward 2026.
- Revisit Section 179 versus bonus for 2027 purchases. Starting next year, every bonus dollar above regular MACRS is a state add-back, while Section 179 dollars flow through clean. For assets within the 179 limits, electing 179 instead of bonus keeps your federal and state numbers identical.
- Set up dual depreciation tracking now. From 2027 on, corporate filers need a federal schedule and a New Mexico schedule for every bonus asset. Tell your bookkeeper or CPA before January so the fixed-asset register captures both from day one — reconstructing the state schedule at filing time is where errors breed.
- Recalibrate 2027 estimated payments. If your C corporation regularly claims bonus depreciation, your 2027 New Mexico liability will run higher than a naive roll-forward of 2026 suggests. Adjust estimates early to avoid underpayment interest.
- Re-run the entity-level tax election math. The PTET computation itself is unchanged, but the federal SALT cap landscape shifted under the same federal law (a $40,000 cap with income-based phase-downs), so the value of electing deserves a fresh look alongside everything else.
- If you hire, calendar the high-wage jobs credit. With eligibility now running to 2036, qualifying new positions should be documented as created so the credit survives a future audit.
Keep Two Sets of Books Without the Headache
SB 151 is a case study in why state tax conformity deserves a line item in your planning calendar: a single federal law quietly rewrote your New Mexico liability, and a single state bill rewrote it again. Going forward, corporate filers in the state live in a two-schedule world for depreciation, and the businesses that handle it smoothly will be the ones whose fixed-asset records were built for it.
That is fundamentally a bookkeeping discipline — tracking placed-in-service dates, elections, and parallel depreciation schedules in records you can actually audit years later. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data, including the kind of multi-basis asset tracking a decoupling regime demands. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
