Massachusetts OBBBA Decoupling: What Chapter 101 Changes for 2025 Returns

Massachusetts OBBBA decoupling is now law. Chapter 101 of the Acts of 2026, approved June 12, 2026, disallows several One Big Beautiful Bill Act (OBBBA) deductions on Massachusetts personal income tax and corporate excise returns. It reaches back to 2025 for most items and, in practice, to 2022 for the section 70302(f) transition deductions. If you prepare returns for Massachusetts S corporations, partnerships, LLCs or C corporations that took the section 168(n) allowance, the higher section 179 limits, the revised section 163(j) calculation or section 174A research deductions on a 2025 federal return, the Massachusetts return needs its own numbers.

The statute also offered penalty and interest relief for 2025 returns amended within 90 days of enactment. Counting from June 12, that window ended on or about September 10, 2026. That date has passed as of this post, so read the deadline section below before you promise a client anything. If a 2025 Massachusetts return is not yet filed, compute it under sections 37 and 39 now. Section 38 relief covers only returns filed before enactment.

What Does Massachusetts OBBBA Decoupling Actually Disallow?

Chapter 101 disallows or freezes six federal items on Massachusetts returns: the section 168(n) allowance, the OBBBA increase in the section 179 limits, the OBBBA change to the section 163(j) adjusted taxable income definition, section 174A domestic research expensing, the section 70302(f) transition deductions, and section 1400Z-2 as amended. The operative text sits in sections 8, 16, 37 and 39 of the act, amending chapter 62, section 2(d)(1) for personal income tax and chapter 63, section 30 for the corporate excise.

• Section 168(n). Section 37(a)(i) disallows "the deduction allowed by section 168(n) of the Internal Revenue Code, as amended and in effect for the current tax year." Federal 168(n), added by section 70307 of Pub. L. 119-21, is a 100 percent allowance for qualified production property: nonresidential real property used as an integral part of a qualified production activity, with construction beginning after January 19, 2025 and before January 1, 2029.
• Section 179. Section 37(a)(ii) disallows the deduction only "to the extent it is increased by amendments to sections 179(b)(1) and 179(b)(2)" inserted by section 70306. Federal law raised those limits from $1,000,000 to $2,500,000 and from $2,500,000 to $4,000,000. Only the increase is disallowed.
• Section 163(j). Section 37(a)(iii) disallows the deduction to the extent the definition of adjusted taxable income is modified by section 70303. That amendment struck the "before January 1, 2022" limiter in section 163(j)(8)(A)(v), which restored the depreciation, amortization and depletion add-back for years beginning after December 31, 2024. Federal mechanics: business interest limitation in 2026.
• Section 174A. New subparagraph (S) in chapter 62 and clause (x) in chapter 63 disallow "the deductions allowed by section 174A of the Code," with a proviso that research or experimental expenditures "may be deducted as permitted under section 174 of the Internal Revenue Code as in effect on July 3, 2025." OBBBA was approved July 4, 2025, so my reading is that Massachusetts keeps the pre-OBBBA amortization rules. Federal side: Section 174 expensing under OBBBA.
• Section 70302(f). New subparagraph (R) and clause (ix) disallow "the deductions allowed by section 70302(f) of Pub. L. 119-21." Those are the federal transition rules: the small business retroactive election and the election to deduct unamortized 2022 to 2024 amounts.
• Section 1400Z-2. Section 39(a) requires taxpayers, for years beginning in 2025 or 2026, to "apply section 1400Z-2 of the Internal Revenue Code as in effect for taxable years beginning prior to January 1, 2026." Most of the OBBBA changes to 1400Z-2 apply federally to amounts invested after December 31, 2026. The rural substantial-improvement change took effect on enactment, so check any existing structure in an all-rural opportunity zone that is being substantially improved in 2025 or 2026. Outside that case I would expect little 2025 effect. That is my inference, not something the act says. See opportunity zone reporting requirements.

Section 168(k) is absent on purpose. Massachusetts already disallows it, at chapter 62, section 2(d)(1)(N) and chapter 63, section 30(4)(iv).

Which Tax Years Does Chapter 101 Reach?

The act reaches different years for different items, and the conditions are spread across sections 37, 39, 45, 46 and 47.

Sections 37(a) and 39(a) cover taxable years "beginning in 2025 and 2026" (168(n), 179, 163(j)) and "beginning in 2025 or 2026" (1400Z-2). Section 46 says sections 8 and 16, the 174A and 70302(f) disallowances, "shall apply for taxable years beginning on or after January 1, 2022." The 2022 date matches the federal small business election in section 70302(f)(1), which substitutes December 31, 2021 for December 31, 2024. I read that as the reason, though the act does not say so.

Then section 47 narrows the 174A piece going forward: sections 9 and 17, which strike the 174A disallowance, "shall take effect for taxable years beginning on or after January 1, 2026," unless the ballot initiative discussed below passes. Sections 9 and 17 strike only subparagraph (S) and clause (x). The 70302(f) disallowance is not struck. So if the initiative fails, 174A conformity returns for 2026 years, and the 2022 to 2024 transition deductions stay disallowed.

What Happens if Ballot Question 25-18 Passes?

If the 2026 initiative petition titled "25-18 Initiative Petition for a Law Relative to Reducing the State Personal Income Tax Rate from 5% to 4%" passes, the 168(n), 179, 163(j) and 1400Z-2 disallowances continue past 2026, and the 174A conformity in sections 9 and 17 never takes effect. Section 37(b) makes the disallowances apply "for all future taxable years if the 2026 ballot initiative ... passes until action by the general court to authorize said deductions and the identification of an alternative revenue source to replace any revenue lost due to said ballot initiative."

Read the end of that sentence. The disallowance is indefinite, not permanent, because the General Court can end it. Section 39(b) does the same for 1400Z-2.

If the initiative fails, section 37(a) and section 39(a) stop at 2026 years. The act contains no disallowance for 2027 and later in that case. I read that as a return to the ordinary rule, but I have not confirmed that against any Department of Revenue statement. Run both scenarios in projections.

How Did the 90-Day Penalty Relief Work, and Is It Still Open?

Section 38 waived interest and penalties on 2025 underpayments only for taxpayers who met two conditions, and the window to meet the second one has closed. The text applies where a taxpayer "filed a return with the commissioner of revenue for such taxable years prior to enactment of this act that did not accord with sections 8, 16, 37 and 39, and the taxpayer files a subsequent return ... to adjust the previous return to accord with said sections 8, 16, 37 and 39 within 90 days of enactment of this act."

Three limits apply:

1. It covers "taxable years beginning in 2025" only. It does not mention 2022 to 2024 years or 2026.
2. It covers returns filed before enactment. A 2025 return filed after June 12 is not within that text, so it needed to be correct when filed.
3. Ninety days from June 12, 2026 is September 10, 2026. The act does not state a counting convention, so I would not rely on September 10 as a last day for anything.

I found nothing in the act extending the window, and it is silent on what follows September 10. I could not verify any Department of Revenue guidance, technical information release or revised form instructions. Check mass.gov/dor before you advise on abatement.

What Is Chapter 63E and Who Is an Eligible Pass-Through Entity?

Chapter 63E, inserted by section 21, lets an eligible pass-through entity elect to pay a 4 percent excise on income its qualified members earn above the Massachusetts surtax threshold. Section 1 defines "eligible pass-through entity" as "an S corporation under section 1361 of the Code, a partnership under section 7701 of the Code or a limited liability company that is treated as an S corporation or partnership" under those sections.

The surtax is the additional 4 percent on income over $1,000,000, indexed, in chapter 62, section 4(d). The excise reaches only "qualified members": natural persons, trusts or estates subject to tax under section 10 of chapter 62, whether resident, nonresident or part-year, whose allocable share exceeds the threshold. Only the excess is taxed.

Section 2 gives each qualified member a refundable credit against chapter 62 tax equal to the member's share of the excise "multiplied by 0.9." Illustration at the unindexed $1,000,000: a member allocated $1,500,000 has $500,000 of qualified income. The entity pays 4 percent, or $20,000. The member's credit is $18,000. The member still owes the $20,000 surtax, less the $18,000 credit, which leaves $2,000. Add the entity's $20,000 payment and total Massachusetts tax is $22,000 against $20,000 with no election, so the election costs $2,000 before any federal benefit. Chapter 101 says nothing about the federal deduction.

The rules that catch people:

• The election is annual, binds all members, and under section 6 "shall not be revoked" once made.
• The excise is "in addition to, and not in lieu of" other Massachusetts tax, and it is due on the original, timely filed return (section 4).
• Section 3 switches the chapter off for any year the federal limit under section 164(b)(6) "has expired or is otherwise not in effect."
• Section 45 applies chapter 63E to years beginning on or after January 1, 2026.
• Section 7 lets the commissioner require estimated payments and extend the credit through tiered entities, but the text says "may," not "shall."

Compare the New York PTET election, which is not limited to income above a threshold.

What Does Chapter 101 Not Establish?

The act does not say how the Department of Revenue will treat late amendments, does not tell you the federal treatment of a 63E payment, and cannot predict the ballot result that determines the 2027 answer.

One more structural change is worth flagging. Section 13 adds chapter 62C, section 90, and sections 14 and 15 carry it into chapter 63. Under it, an amendment to the Internal Revenue Code affecting Massachusetts income generally does not apply to the taxable year beginning in the year of enactment or to earlier years, unless the commissioner determines within 90 days that the revenue impact is under $20,000,000. Section 45 applies those provisions to years beginning on or after January 1, 2026. Massachusetts is moving away from simple rolling conformity, which changes how I read rolling, static and selective conformity for this state.

I built Tax Orator partly because a statute like this reaches practitioners as a summary before the text. The enacted session law is in the corpus with its official source attached. This post rests on the session law, the bill text and Pub. L. 119-21; read sections 37 to 39 and 45 to 47 together.