Reporting certain depreciation and research and experimental deductions for tax year 2025

The 2026-2027 New York State Budget decoupled from federal accelerated depreciation for qualified production property and from the federal treatment of research and experimental expenditures¹. These changes apply to tax years beginning on or after January 1, 2025.

If a 2025 tax return has been filed, an amended return must be filed to report the modifications described in this notice.
If a 2025 tax return has not yet been filed, the modifications described in this notice must be reported on a timely filed 2025 return.

Penalty and interest relief is available to taxpayers that timely file or amend a tax year 2025 return reporting the modifications described in this notice. Taxpayers that receive a bill or notice that includes penalties and interest related to these modifications should attach a written explanation with their response indicating that the underpayment is related to H.R. 1 modifications.

Depreciation for qualified production property (IRC § 168[n])

New York State does not conform to the federal law that allows accelerated depreciation for qualified production property under Internal Revenue Code (IRC) § 168(n). As a result, the New York State tax return must be adjusted as follows:

The full amount of any federal deduction for accelerated depreciation on qualified production property under IRC § 168(n) must be added back.
A subtraction is allowed for the amount reported as depreciation on qualified production property, calculated as if the special depreciation election had not been made².

Taxpayer type

Individuals, Partnerships, Estates, and Trusts

Calculate the modifications on Form IT-398, New York State Depreciation Schedule for IRC Section 168(k) Property, by including qualified production property in Part 1 of this form.
Report the modifications on Form IT-225, New York State Modifications, using addition code A-209 and subtraction code S-213.

Partnerships must provide each partner with the modification information on Form IT-204-IP, New York Partner’s Schedule K-1, or Form IT-204-CP, New York Corporate Partner’s Schedule K-1, as applicable. If required to file Form IT-204.1, New York Corporate Partners Schedule K, partnerships must report the modifications using addition code A-507 and subtraction code S-507 when completing that form.

C Corporations (Article 9-A)

Calculate the modifications on Part 1 of Form CT-399, Depreciation Adjustment Schedule, by including qualified production property in Section B of this form.
Report the modifications on Form CT-225 or Form CT-225-A, New York State Modifications, as applicable, using addition code A-507 and subtraction code S-507.

New York S Corporations

Calculate the modifications on Part 1 of Form CT-399, by including qualified production property in Section B of this form.
Report the modifications on lines 2 and 4 of Form CT-34-SH, New York S Corporation Shareholders’ Information Schedule, as applicable.

Insurance Corporations (Article 33)

Calculate the modifications on Part 1 of Form CT-399, by including qualified production property in Section B of this form.
Report the modifications directly on the franchise tax return, following the instructions for that form (Form CT-33, Life Insurance Corporation Franchise Tax Return or Form CT-33-A, Life Insurance Corporation Combined Franchise Tax Return).

Partners, Shareholders, and Beneficiaries

Do not complete Form IT-398 or Form CT-399. Instead, report the modifications provided by the entity as follows:

Individuals: Use Form IT-225, Part 2 of Schedules A and B, as applicable.
C Corporations and S Corporations: Use Form CT-225 or CT-225-A, Part 2 of Schedules A and B, as applicable.
Insurance Corporations: Use the applicable lines on the franchise tax return.

Foreign and domestic research and experimental expenditures [IRC §§ 174 and 174A]

The 2026-2027 New York State budget also decoupled from the federal treatment of foreign and domestic research and experimental (R&E) expenditures. These changes apply to tax years beginning on or after January 1, 2025. As a result, New York State tax returns must be modified as follows:

The full amount of any federal deduction for foreign and domestic R&E expenditures must be added back³.
A subtraction is allowed for R&E expenditures using the following rules:
- For foreign and domestic R&E expenditures paid or incurred on or after January 1, 2025, the expenditures must be amortized over a 60-month period⁴.
- For foreign and domestic R&E expenditures paid or incurred before January 1, 2025, the expenditures must continue to be amortized under the federal rules in effect on January 1, 2022⁵.

Taxpayer type

Individuals, Partnerships, Estates, and Trusts

Report the modifications on Form IT-225 using addition code A-225 and subtraction code S-221 for expenditures paid or incurred on or after January 1, 2025, or S-222 for expenditures paid or incurred before January 1, 2025.

Partnerships must provide each partner with the modification information on Form IT-204-IP, or Form IT-204-CP, as applicable. If required to file Form IT-204.1, partnerships must report the modifications using addition code A-225 and subtraction code S-221 for expenditures paid or incurred on or after January 1, 2025, or S-222 for expenditures paid or incurred before January 1, 2025.

Corporations (Articles 9-A and 33)

Report the modifications on Form CT-225 or Form CT-225-A, using addition code A-225 and subtraction code S-221 for expenditures paid or incurred on or after January 1, 2025, or S-222 for expenditures paid or incurred before January 1, 2025.

New York S Corporations must report the modifications on Form CT-34-SH and provide their shareholders with the modification information needed to complete their returns.

Partners, Shareholders, and Beneficiaries

A partner, shareholder or beneficiary must not calculate the amortization for the share of the entity’s expenditures. Instead, the modification provided by the entity should be reported as follows:

Individuals: Use Form IT-225, Part 2 of Schedules A and B, as applicable.
C Corporations and S Corporations (Article 9-A and 33): Use Form CT-225 or CT-225-A, Part 2 of Schedules A and B, as applicable.

Footnotes
¹	As enacted by Federal Public Law 119-121, commonly referred to as the One Big Beautiful Bill Act (OBBBA) or H.R. 1.
²	Depreciate under IRC § 167 as if the election under IRC § 168(n) was not made.
³	Include any federal deductions under IRC §§ 174, 174A, and Federal Public Law 119-21, title VII, § 70302(f)(2)(a).
⁴	Amortize as if the election under IRC § 174A(c) applied.
⁵	Amortize under IRC § 174.

Note: An N-Notice is generally issued to announce a singular event, such as an update to a previously issued tax form or instruction, or to announce a new due date for filing returns and making payments of tax because of a natural disaster. The department does not revise previously issued N-Notices.

Updated: June 16, 2026