Michigan Decouples From Key OBBB Tax Provisions: What Businesses Need to Know for 2025

Michigan business owners should prepare for major changes to their state tax obligations in 2025. Governor Gretchen Whitmer signed House Bill 4961 on October 7, 2025, officially separating Michigan from several federal tax provisions introduced under the One Big Beautiful Bill (OBBB).

These changes could significantly affect how companies calculate Michigan taxable income, especially when it comes to depreciation, expensing, research costs, and interest limitations.

This article breaks down what Michigan’s decoupling means, which OBBB benefits no longer apply at the state level, and how businesses can plan ahead.

What Does “Decoupling” Mean in Tax Law?

Many states “conform” to the federal Internal Revenue Code (IRC), meaning they use federal tax rules as the starting point for calculating state taxable income. This typically simplifies compliance.

Michigan is now “decoupling” from several OBBB rules, which means:

• Michigan will no longer follow certain federal tax provisions

• Federal tax rules do not change

• Michigan will require different addbacks, deductions, and depreciation calculations

• Businesses may need separate federal vs. state schedules

For 2025 and beyond, Michigan businesses should expect greater divergence between federal deductions and Michigan Corporate Income Tax (CIT) calculations.

Key OBBB Provisions Michigan Will No Longer Follow in 2025

Michigan’s decoupling affects multiple high-value federal incentives. These changes apply to all business taxpayers—including C corporations, S corporations, partnerships, and sole proprietors—who benefit from federal OBBB provisions.

Here’s what’s changing:

1. Michigan Disallows Federal Bonus Depreciation

Businesses can no longer claim the 100% first-year write-off at the state level.

2. Section 179 Expensing Limits Will Not Match Federal Levels

Michigan will continue using its pre-OBBB expensing cap, including the lower $1.25 million threshold.

3. Research & Experimental (R&E) Costs Must Be Capitalized

Unlike federal OBBB rules, Michigan will not allow immediate expensing.
Businesses must continue capitalizing and amortizing R&E expenses.

4. Business Interest Expense Deduction Remains Limited

Michigan does not adopt OBBB’s expanded federal interest deduction rules.

5. Section 168(n) Special Depreciation Is Eliminated

The federal 100% depreciation for qualified production/manufacturing property will not apply in Michigan’s CIT calculation.

For many companies, this will result in higher Michigan taxable income than they might expect based on federal returns.

Example: How Michigan’s Decoupling Affects 2025 Depreciation

To illustrate the impact, consider this updated and SEO-friendly example:

Scenario:
A Michigan C-corporation buys new seven-year equipment for $120,000 on April 15, 2025.

Federal OBBB Treatment

• Equipment qualifies for 100% bonus depreciation

• Full $120,000 is deducted in 2025

Michigan Treatment (Decoupled)

Michigan requires businesses to:

• Add back the federal bonus depreciation

• Claim only standard MACRS depreciation (approx. $17,148 for year one)

Michigan CIT Calculation:

This example shows how Michigan decoupling can create a large difference between federal and state taxable income, especially for businesses purchasing equipment or investing in research.

How Michigan Businesses Should Prepare for 2025 Tax Changes

To avoid unexpected liabilities, Michigan businesses should start preparing now. Recommended steps include:

✔ Update capital expenditure plans

Model both federal and state depreciation schedules.

✔ Review Section 179 strategies

Michigan’s lower limits may affect year-end purchasing decisions.

✔ Track R&E expenses separately

Ensure proper capitalization and amortization for Michigan purposes.

✔ Evaluate interest expense limitations

Decoupling may reduce allowable state-level deductions.

✔ Adjust tax projections for Michigan CIT

Cash-flow impact may be significant for asset-heavy industries.

These changes make proactive state tax planning essential.

Need Help Navigating Michigan’s New Tax Rules?

Michigan’s decoupling from OBBB introduces major differences between state and federal tax treatment starting in 2025. Whether you operate as a C corporation, partnership, or pass-through entity, these changes could increase your state tax burden if not managed strategically.

If you want expert guidance on how these new rules affect your business, click the button below to connect with a tax professional who understands Michigan’s evolving tax environment.