We want to alert you that House Bill 255 was passed last night and is now Delaware law. This new law makes significant changes to the timing of businesses taking depreciation deductions on property and equipment, in many cases requiring businesses to maintain two sets of books- one for Federal and one for Delaware depreciation. We anticipate that this new law will impact the tax planning for many businesses. There are also major changes for corporations eligible to take advantage of the tax credits for research and experimental expenditures.
We break down key highlights below.
What Does HB 255 Do?
HB 255 was enacted to address changes in federal tax law that allow businesses to retroactively deduct research and development costs and currently deduct property and equipment investments. Delaware has chosen to decouple from these federal provisions, meaning the state will not follow the same accelerated deduction rules.
Key Tax Implications:
- Timing of Deductions: While federal law permits immediate expensing for research and development costs, Delaware will require these deductions to be spread over multiple years for tax years 2022 – 2024.
- Small Business Expensing: The $2.5 million annual limit for small business property and equipment expensing under Section 179 remains unchanged. However, 100% bonus depreciation is no longer allowed.
- No Retroactive Adjustments: HB 255 prevents retroactive deductions that could have impacted prior-year filings.
Effective Dates and Timelines:
- The changes apply to tax years beginning on or after January 1, 2026, for individual taxpayers, including those with pass-thru income from S-Corps and Partnerships.
- Delaware will issue additional guidance before the end of 2025.
- A revenue impact report will be published by December 2027, which may lead to further adjustments.
What Should You Do Now?
- Review your capital investment and R&D plans for 2026 and beyond.
- Consider the impact on cash flow and tax planning since deductions will be deferred at the state level.
We will monitor updates and provide detailed guidance as Delaware releases regulations. If you have questions about how HB 255 impacts your business or need assistance with planning, please don’t hesitate to contact our office. We are here to help.
