Texas Franchise Tax Now Tracks Federal Bonus Depreciation More Closely—Why Real Estate Investors Should Recheck 2025 Entity-Level Projections

A number of Texas real estate investors have built 2025 projections using a familiar assumption: federal depreciation may change, but Texas franchise tax often requires its own adjustments. That assumption now needs to be revisited.

The current development is that the Texas Comptroller has issued guidance addressing franchise tax conformity to the Internal Revenue Code and the effect of the OBBBA on bonus depreciation. The key point is that Texas is updating its franchise tax depreciation rules to align with federal provisions more closely, based on the Comptroller’s published FAQ and STAR guidance.¹² For investors holding property through Texas taxable entities, that can change margin calculations, estimated tax expectations, and the value of deductions at the entity level.

This is a technical change, but the practical issue is straightforward: if your Texas entity capitalizes and depreciates assets connected to rental operations, improvements, or qualifying personal-property components, the state-level treatment may now move more in step with the federal result than your models assumed.

The current development

The Comptroller’s current franchise tax FAQ on IRC conformity states that Texas franchise tax is being updated in response to federal law changes and addresses how bonus depreciation applies under the OBBBA.¹ The STAR guidance also addresses franchise tax depreciation treatment in light of the updated conformity framework.²

For planning purposes, the important point is that this is a current administrative development reflected in published Texas tax guidance, not merely a theoretical conformity issue.¹²

Why this matters

For many real estate investors, Texas franchise tax is not the primary tax burden. It is, however, a meaningful entity-level cost that can move with accounting method assumptions, expense classification, and depreciation timing.

If Texas now follows federal depreciation rules more closely for franchise tax purposes, then changes in federal bonus depreciation can affect:

current-year Texas taxable margin,
the timing of deductions recognized by the entity,
whether prior Texas adjustment assumptions are still correct,
estimated tax payments and extension planning, and
the economics of placing assets in service before or after year-end.¹²

That is especially relevant in structures where investors expected federal bonus depreciation to produce a large book-to-tax difference but expected Texas to treat the depreciation differently. A conformity update can narrow that gap.

For a real estate investor, this is less about “more deduction” in the abstract and more about timing. Timing drives cash flow. If an entity-level deduction moves into 2025 rather than later years, that can lower current Texas franchise tax exposure. If your projections assumed the opposite, your quarterly planning may be off.

The real estate angle: entity choice and asset mix still matter

Not every property owner will feel this the same way.

A holding structure that owns stabilized multifamily with limited current-year capital additions may see a modest effect. A development, value-add, or acquisition vehicle that placed significant shorter-life components in service may see a more noticeable one.

That distinction matters because franchise tax is imposed on the entity’s taxable margin, not on the property-level economics alone. And Texas has separate rules governing what qualifies as cost of goods sold versus other deductions, which can be relevant for real estate businesses depending on the nature of their activities.³

For investors, the practical takeaway is that depreciation conformity does not eliminate the need to review the underlying character of costs. Texas conformity may affect depreciation treatment, but the broader franchise tax computation still depends on how receipts, compensation, and deductible amounts are determined under Texas law.¹³

For more on cost classification issues, see the Texas Comptroller’s Cost of Goods Sold FAQ.³

A practical distinction: federal benefit does not always equal Texas benefit in the same way

The easy mistake here is to jump from “Texas aligns with federal law” to “our Texas result will match our federal return.”

That is too broad.

The current guidance supports the conclusion that Texas is aligning its franchise tax depreciation rules with federal provisions, including the OBBBA’s impact on bonus depreciation.¹² It does not mean every federal tax outcome flows automatically into the Texas franchise tax base without separate analysis. Texas franchise tax remains its own tax system, with its own margin framework, sourcing rules, and deduction mechanics.¹³

For real estate investors, that means two reviews are still separate:

Federal depreciation analysis What qualifies for bonus depreciation federally, and in what year?
Texas franchise tax computation How does that federal depreciation result feed into margin, and what other Texas-specific rules still modify the outcome?

Those are related, but they are not identical questions.

Hypothetical: apartment acquisition with a cost segregation study

Hypothetical example.

Assume an LLC taxed as a partnership owns a Texas apartment property through an entity subject to Texas franchise tax. In 2025, it acquires and places in service a property with significant shorter-life components identified through a cost segregation study—carpeting, certain cabinetry, site lighting, and other non-structural elements.

Assume further:

the federal return reflects accelerated depreciation treatment for qualifying components,
the entity had projected Texas franchise tax using an older assumption that the state treatment would differ more from the federal result, and
the updated Comptroller guidance now points to closer conformity.¹²

If the entity originally projected a higher Texas margin because it expected a state-level depreciation adjustment, the revised conformity treatment could reduce projected franchise tax for the year. The exact dollar impact depends on the entity’s revenue, deduction method, and how the depreciation items feed into the franchise tax base.

The planning issue is not just the annual return. It is also whether owners should change estimated-payment assumptions, update acquisition underwriting, or revisit capital expenditure timing before year-end.

For readers looking at cost segregation specifically, the key question is not whether cost segregation matters—it often does—but whether your Texas model has been updated to reflect the Comptroller’s current conformity guidance.¹²

What the current packet does and does not establish

The materials provided support these points:

Texas has issued current franchise tax guidance on IRC conformity.¹
The OBBBA affects bonus depreciation application in Texas franchise tax analysis.¹
STAR guidance addresses the state’s position administratively.²

But the packet does not establish certain details, including:

specific numerical thresholds or percentages for bonus depreciation under the updated Texas treatment,
data quantifying how many businesses are directly affected,
long-term tax revenue projections from the franchise tax change,
how the Comptroller will address every fact pattern involving historic filings, or
whether amended-report positions will be accepted in all circumstances.

Because those points are not established in the packet, they should not be treated as settled here. If your structure is material, the better approach is to model the return under the published guidance and confirm treatment against the actual filing position rather than relying on a generalized summary.

What investors should review now

For Texas real estate investors, the immediate work is mechanical, not conceptual.

1. Revisit 2025 Texas entity projections

If your underwriting assumed a disconnect between federal depreciation and Texas franchise tax, update that assumption. This matters most for:

acquisition entities closing in 2025,
cost segregation studies completed or expected this year,
heavy tenant-improvement or renovation cycles, and
mixed operating entities with substantial equipment or site assets.

2. Check extension and estimated tax assumptions

If current-year margin may be lower because depreciation is recognized more favorably than expected, estimated tax planning may need to be revised. Even if the annual difference is manageable, overpaying based on an outdated assumption is still a cash-management issue.

3. Separate depreciation analysis from COGS analysis

The Comptroller’s COGS FAQ remains relevant because many real estate businesses still need to determine whether specific costs fit within Texas cost of goods sold rules.³ Conformity on depreciation does not answer every deduction question inside the franchise tax calculation.

4. Re-underwrite post-acquisition cash flow

For investors buying late in the year, the timing of placed-in-service assets can affect first-year deductions. If Texas now follows the federal depreciation result more closely, that can alter first-year after-tax cash flow and potentially the economics of closing before year-end versus after.

MFS view: this is a timing and modeling issue first

Our read is that this development matters less as a broad policy headline and more as a modeling correction.

For real estate investors, bonus depreciation is already a familiar planning tool. The meaningful change here is that Texas franchise tax treatment may now track that federal result more closely, which can shift entity-level tax timing.¹² That affects:

deal underwriting,
annual cash reserves,
extension calculations, and
communication between the CPA handling federal depreciation and the team preparing Texas franchise tax reports.

The mistake would be to treat this as either trivial or automatic. It is neither. The likely benefit is improved alignment, but the practical value depends on your entity structure and the assets actually placed in service.

Questions we are hearing

Does this mean Texas franchise tax now fully matches the federal return?

No. The guidance supports closer conformity on depreciation, including bonus depreciation under the OBBBA, but Texas franchise tax still uses its own margin system and related rules.¹³ Readers should treat this as a conformity change within the franchise tax framework, not as complete adoption of every federal tax result.

Does the article identify a specific Texas bonus depreciation percentage or threshold?

No. The packet states that Texas is updating its franchise tax rules to align more closely with federal provisions and that the OBBBA affects bonus depreciation, but it does not provide a verified Texas-specific numerical threshold or percentage to add here.¹² If your model depends on the exact federal percentage in a particular year, confirm that percentage directly in the governing federal rules and then test how it feeds through the Texas franchise tax computation.

Is this mainly a C corporation issue?

No. Real estate investors often use partnerships, LLCs, and layered entity structures, but Texas franchise tax can still apply at the entity level depending on the structure. The current issue is the entity’s Texas filing position, not just federal owner-level taxation.¹

Should investors amend older Texas franchise tax reports?

The packet does not establish a general answer. That depends on the periods involved, the guidance’s effective application, and the entity’s facts. This is one of the areas where the published materials should be read carefully before taking a filing position.¹²

Does this change the value of a cost segregation study?

Potentially, yes. If Texas now tracks federal depreciation more closely, the state-level benefit of shorter-life component identification may be stronger than assumed in some projections. But the exact effect still depends on the full Texas franchise tax calculation. Readers comparing alternatives should review both depreciation conformity guidance and Texas cost classification rules.¹²³

How many businesses are affected, and what is the long-term revenue impact?

The packet does not provide quantified data on the number of affected businesses or long-term estimates of the Texas tax revenue effect. As a result, this article does not make numerical claims on either point.

What should be monitored next?

Additional Comptroller clarification, filing instructions, and how practitioners apply the STAR guidance to specific fact patterns. Investors with large 2025 placed-in-service amounts should also watch whether return-preparation software and workpapers have updated for the conformity change.²

What to do next

If you own Texas real estate through a taxable entity, now is the time to recalculate 2025 franchise tax projections using the Comptroller’s current conformity guidance. That is particularly important if this year includes an acquisition, a cost segregation study, or significant capital improvements. A refreshed model can help you revisit estimated payments, extension planning, and year-end timing decisions before they become filing problems.

Sources

Texas Comptroller, Franchise Tax Frequently Asked Questions – IRC conformity: https://comptroller.texas.gov/taxes/franchise/faq/irc-conformity.php
Texas Comptroller, Franchise Tax Frequently Asked Questions – Cost of Goods Sold: https://comptroller.texas.gov/taxes/franchise/faq/cogs.php
Texas Comptroller STAR guidance: https://star.comptroller.texas.gov/view/202603002M

Texas Comptroller, Franchise Tax Frequently Asked Questions – IRC conformity, https://comptroller.texas.gov/taxes/franchise/faq/irc-conformity.php ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³ ↩¹⁴ ↩¹⁵ ↩¹⁶ ↩¹⁷
Texas Comptroller STAR guidance, https://star.comptroller.texas.gov/view/202603002M ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸ ↩⁹ ↩¹⁰ ↩¹¹ ↩¹² ↩¹³
Texas Comptroller, Franchise Tax Frequently Asked Questions – Cost of Goods Sold, https://comptroller.texas.gov/taxes/franchise/faq/cogs.php ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷