Texas Franchise Tax Now Follows Federal Depreciation. Here's What Finance Teams Have to Track.

Beginning with the 2026 Texas franchise tax report, the Comptroller lets a company include the bonus depreciation it claimed on its federal return in the Texas cost-of-goods-sold (COGS) deduction — something the old rules, frozen to the 2007 Internal Revenue Code, did not allow (Texas Register, adopted 34 TAC §3.588). For a Texas finance team the useful change is not “a bigger deduction.” It is a new reconciliation: you now have to track two depreciation figures per asset — federal and Texas-COGS — flag which assets are tied to producing goods, and handle a one-time catch-up adjustment that exists only on the 2026 report. This is for the controller or finance-operations lead in Dallas, Houston or anywhere in Texas who owns the fixed-asset subledger and has to get those records ready. Confirm the elections and the exact numbers with your tax advisor; the rule's own text governs.

What changed for the 2026 report

Two things lined up. Federally, the One Big Beautiful Bill Act (signed July 2025) permanently reinstated 100% bonus depreciation under IRC §168(k) for qualified property acquired after January 19, 2025, and restored immediate expensing of domestic research costs under new §174A for tax years beginning after December 31, 2024 (Bracewell; Grant Thornton). Then Texas moved its franchise tax to match. In amendments to the COGS rule adopted effective June 21, 2026, the Comptroller provides that, beginning with the 2026 report, depreciation in COGS follows “then-current federal tax law instead of the 2007 Internal Revenue Code,” and gives the example that an entity may include “the bonus depreciation claimed on its federal return” in COGS, to the extent the asset is associated with and necessary for producing the goods (Texas Register; EY).

Before this, Texas and federal depreciation deliberately diverged: your team computed COGS depreciation under 2007 law while the federal return used current rules, so the two numbers rarely matched. Starting with 2026, for most depreciation they converge.

See where a dual-basis depreciation reconciliation fits a finance team's systems.

Why this is mostly timing, not a permanent cut

A larger deduction now means a smaller one later. Bonus depreciation writes off an asset's cost up front, which leaves less basis to depreciate in future years — so the Texas COGS benefit is largely a timing shift, not found money. Two features of the rule make that concrete.

First, the rule offers a one-time net depreciation adjustment on the 2026 report for qualifying assets placed in service before the 2026 accounting-year begin date and not yet disposed of. Its job is to bring each asset's federal basis and Texas COGS basis into line so that a future gain on a sale is offset (Texas Register). Second — and this is the part finance teams miss — there is no carryforward. The Comptroller rejected a request to carry unused 2025 bonus depreciation forward, noting there is no carryforward provision for unused COGS costs and that adding one would take legislation. If your COGS already exceeds revenue in a year, extra bonus depreciation in that year is simply lost.

Who can actually use it

Only entities eligible for the Texas COGS deduction can put bonus depreciation there — generally those that produce or acquire goods for sale, plus certain real-property construction and improvement work. The asset has to be “associated with and necessary for producing the goods” (Texas Register). A service-only firm that files on the compensation deduction or the 70%-of-revenue method gets nothing from this change. That is why it matters most to operating companies with real capital equipment: manufacturers, food and beverage producers, wholesale distributors, and construction firms.

What the finance team tracks vs. what the advisor decides

This is an accounting-records problem first and a tax-return problem second. Keep the split clear so nothing falls between the controller and the preparer:

The pattern: the finance team makes the two bases reproducible and auditable; the advisor chooses the positions. If your records cannot show both numbers for an asset on demand, the advisor cannot defend the deduction.

A worked example (illustrative)

Assumptions, illustrative only; not a projection for any company. A Houston food producer buys a $500,000 packaging line and places it in service in March 2025.

• Federal: under permanent 100% bonus depreciation, the full $500,000 is deducted in 2025.
• Texas 2026 report: because the asset was placed in service in 2025, its federal and Texas COGS bases are the same, so there is no catch-up adjustment for it; the $500,000 flows into the 2026 COGS subtraction to the extent it is tied to producing goods. At the 0.75% rate for a producer (Texas Comptroller), a $500,000 larger COGS subtraction lowers that year's franchise tax by up to $3,750 — and that same $500,000 is no longer available to depreciate in 2027 and beyond.
• An older asset: a lathe placed in service in 2021 has been depreciated federally for years, while its Texas COGS figures were computed under 2007 law. The pre-2025 asset is exactly where the one-time 2026 adjustment lives; the rule's text and your advisor set the figure, because the adopted rule describes the adjustment's purpose but does not publish a single formula.

The lesson for the records: 2025-and-later assets are easy because the two bases match; pre-2025 assets are where the one-time adjustment — and the risk of getting it wrong — sits.

What to set up in your fixed-asset records now

Add the fields that let you reproduce both depreciation numbers and the production flag on demand, before the spring filing work starts:

• A Texas-COGS depreciation column beside the federal one for every asset, so the two bases are visible and reconcilable each period.
• A production-association flag (COGS-eligible yes/no) set when the asset is added, with a short note on why, so the eligibility call is not reconstructed from memory at filing time.
• Placed-in-service date and disposal status, because both decide whether an asset is in the one-time adjustment and whether a later sale triggers a gain the adjustment was meant to offset.
• A named owner — usually the controller or fixed-asset accountant — for the monthly tie-out between the federal schedule and the Texas-COGS column, and a defined exception path when the two do not reconcile.

If you keep fixed assets in a spreadsheet today, this is the point to decide whether the subledger and the reconciliation belong in your accounting system or a dedicated fixed-asset tool — the same build-or-configure question that shows up across a finance team's month-end reconciliations. Configuring what you already own usually beats a custom build here.

Sources

• Texas Register — adopted amendments to 34 TAC §3.588 (Margin: Cost of Goods Sold)
• EY Tax News — Texas Comptroller guidance on franchise tax alignment with federal law
• CohnReznick — Texas aligns franchise tax depreciation rules to the OBBB
• Bracewell — Big tax changes in the One Big Beautiful Bill Act
• Grant Thornton — Permanent full expensing for U.S. research under OBBBA
• Texas Comptroller — Franchise Tax