Category: Tax

Michigan has de-coupled from federal tax legislation affecting millions of Michigan taxpayers.  Michigan typically follows federal tax laws which makes reporting taxes in Michigan rather easy.  For example, you can take the same deduction for gambling losses in Michigan as you can on Schedule A of your federal return.  Under H.B. 4961 (passed in October 2025) Michigan tax law separated from several provisions of federal tax law and this will affect corporations, pass-through entities, and individual tax payers. 

What specific code sections or items are changed under the new Michigan Revenue Code?  Michigan is now disallowing the 100% bonus depreciation expense that is allowed under the federal code.  Michigan is using the Tax Cuts and Jobs Act (TCJA) tax law which allows a reduced bonus deduction.  The amount you can claim for bonus depreciation in Michigan is now:

• 40% in 2025
• 20% in 2026
• 0% in 2027

The good news is that Michigan does allow Section 179 expensing of new assets, however H.B. 4961 did modify Michigan’s rules for Section 179.  Michigan now has a capital expenditure limit for qualified property of $3,050,000 and the deductible expense is $1,220,000.  This is a significant reduction compared to the federal deduction of $2,500,000.

Michigan has also altered the rules regarding Research and Development (R&D or sometimes referred to as R&E) costs.  The federal code under the One Big Beautiful Bill Act (OBBBA) was allowing all R&D expenses to be deducted in their entirety.  Michigan requires capitalization and amortization of those costs.

The final major category where Michigan de-coupled from the federal code is on business interest.  The limitation for both federal and state is 30% of earnings, but the demarcation comes in the subject.  Under federal rules the 30% limit is on EBITDA, while under Michigan code the 30% limit is on EBIT, removing the addback for both depreciation and amortization.  This could certainly limit some businesses in their interest deduction, especially businesses that are capital intensive. The good news for business interest is the Michigan still follows the small business exception which means for businesses that average less than $31 million in gross receipts over a three-year period, this provision does not apply.

This is a rather big split from federal rules for Michigan individuals and businesses.  Please consult with your tax professional to ensure proper reporting and planning around these new Michigan tax laws.  Although the Treasury does not plan to introduce any new forms for tax year 2025 in regard to these changes, there could be new forms in place for 2026.  If you own a pass-through entity, ensure clear and concise reporting on your Form K-1 to properly report any adjustment on your MI Form 1040.

The OBBBA brought about some tax changes for both 2025 (retroactive provisions) and 2026. Navigating the changes can be complex so we do our best to simplify the key provisions below.

INDIVIDUALS

Child Tax Credit (CTC): Increased to $2,200 per qualifying child starting in 2025.

Deduction for Taxpayers Age 65 and Older: For tax years 2025-2028, a new $6,000 deduction per qualified person (up to $12,000 for married filing joint). Adjusted Gross Income (AGI) must be below $75,000 (single) or $150,000 (joint).

Car Loan Interest: For tax years 2025-2028, up to $10,000 per year in interest paid on loans for new personal-use vehicles (even if you do not itemize). The loan must be for a new, U.S.-assembled vehicle under 14,000 pounds, secured by a first lien, with the taxpayer as the original owner and the VIN reported on the tax return. This deduction starts to phase out with modified AGI over $100,000 (single) or $200,000 (joint).

Child and Dependent Care Credit: Starting in 2026 the maximum credit increases to 50% of eligible expenses up to $3,000 for one qualifying child or $6,000 for two or more. This credit fully applies to families with AGI up to $15,000 and gradually phases down to 35% for AGI up to $75,000 ($150,000 for joint).

Miscellaneous Itemized Deductions: Permanently eliminates misc itemized deductions. A new deduction added for K-12 teachers, counselors, coaches, and aides working at least 900 hours per year to deduct unreimbursed classroom expenses, starting in 2026.

Tax-Deferred Investment Accounts for Children: For children born between 1/1/2025 and 12/31/2028, taxpayers can open a new tax-deferred investment account. Taxpayers can contribute up to $5,000 per year in after-tax dollars for each child and the federal government will automatically contribute $1,000 to each account.

Qualified Higher Education Expenses: Families are allowed to use tax-free distributions for a broader range of K-12 expenses, now including books, online materials, tutoring, standardized test fees, dual enrollment, and educational therapies for students with disabilities. Starting in 2026, the annual limit for K-12 distributions increases to $20,000 per beneficiary to match expenses paid in the same tax year.

Charitable Deductions (Individuals): Beginning in 2026, the ceiling for itemized charitable gifts increased to 60% of AGI. For those who do not itemize, there will be a charitable contribution deduction of $1,000 (single) or $2,000 (joint).

Gambling Losses: Starting in 2026, only 90% of your gambling losses can be deducted against your winnings, even if your losses equal or exceed your winnings.

State and Local Taxes (SALT) Cap: The SALT provision is increased to $40,000 for 2025, $40,400 for 2026, followed by 1% increases for 2027 – 2029. This increased provision can be phased out (back to $10,000) for modified AGI greater than $500,000.

Taxes on Tip Income: Individuals will receive a deduction up to $25,000 for qualified tips, subject to a phaseout for modified AGI exceeding $150,000 (single) or $300,000 (joint). Tips from certain specified trades or businesses do not qualify. This deduction is effective for tax years 2025-2028.

Taxes on Overtime: Individuals will receive a deduction of up to $12,500 (single) or $25,000 (joint) for “qualified overtime compensation,” subject to phaseout for modified AGI exceeding $150,000 (single) or $300,000 (joint). Qualified overtime is defined by reference to the Fair Labor Standards Act.

BUSINESSES

Qualified Business Income (QBI) Deduction: This provision is now permanent. There is a new minimum of $400 for applicable taxpayers whose aggregate QBI is at least $1,000. The minimum is also indexed for inflation.

Bonus Depreciation: First-year depreciation on certain qualified property is permanent at 100%. This is effective for property acquired after 1/19/2025. There is also a new provision for “qualified production property” which is considered certain non-residential real property used in the manufacturing, production or refining of certain tangible personal property. The QPP provision is effective for property placed in service after 7/4/2025.

Section 179 Depreciation: For property placed in service after 2024, the expensing limit is increased to $2,500,000 and phasedown threshold is increased to $4,000,000.

Charitable Contributions: There is a new 1% floor (in addition to the 10% ceiling) for this deduction starting in 2026.

Form 1099 Reporting: Starting with payments made in 2026, the reporting threshold for issuing Forms 1099-NEC and 1099-MISC is increased to $2,000 and will be adjusted for inflation each year after that.