IRC conformity and OBBBA-related changes
Senate Bill 243 updates Indiana’s conformity to the IRC from Jan. 1, 2023, to Jan. 1, 2026. As a result, Indiana generally conforms to the OBBBA, with several notable exceptions for business tax provisions. The bill also provides that any amendment to the IRC passed by Congress before Jan. 1, 2026 – including certain OBBBA provisions – apply to taxable years beginning before 2026, to the extent permitted under Indiana law.
Bonus depreciation
Effective July 4, 2025, Senate Bill 243 decouples Indiana from section 168(n) bonus depreciation for certain qualified production property. Indiana remains decoupled from section 168(k). Accordingly, taxpayers must add or subtract any amounts as necessary such that taxable income reflects the amount of depreciation that would have been allowed had the taxpayer not elected bonus depreciation in the year the eligible asset was placed in service.
Business interest
Senate Bill 243 does not make any changes to Indiana’s conformity to section 163(j). As a result, Indiana continues to require business interest expense to be deducted in the current year the interest is paid or accrued.
Research and experimental (R&E) expenses
For tax years ending on or after Dec. 31, 2021, Indiana requires taxpayers to:
- Deduct R&E expenditures charged to a capital account under section 174(a)(2)(A), and
- Add back amounts deducted under section 174(a)(2)(B) related to previously capitalized and amortized R&E expenses.
Senate Bill 243 amends the Indiana tax code to:
- Explicitly reference domestic R&E costs under section 174A(b) for tax years beginning after Dec. 31, 2024, and
- Require an addition to Indiana taxable income for amounts deducted under section 70302(f)(2) of P.L. 119‑21, which provides for catch‑up amortization of R&E expenditures incurred in 2022 through 2024.
As a result, Indiana continues to require current‑year expensing of both domestic and foreign R&E expenditures in the year they are paid or accrued.
R&E and small business elections
Senate Bill 243 also addresses situations in which a small business taxpayer elects to amend prior‑year federal returns under section 70302(f)(1).
- If a taxpayer elects to retroactively deduct certain R&E expenditures at the federal level, the taxpayer must amend Indiana corporate income tax returns to add back those amounts to Indiana taxable income, to the extent the expenses were deducted in a prior Indiana tax period.
- Any amended federal return filed with the IRS is treated as a final IRS adjustment on the date the amended return is filed.
- If the taxpayer does not make the retroactive federal election, the R&E expenses are treated as capitalized for federal purposes and must be added back to Indiana taxable income in the year the amortized amounts are deducted federally.
Section 250(a)(1)(B) deduction
Senate Bill 243 also updates the Indiana code to make reference to Net CFC Tested Income (NCTI) rather than global low-taxed intangible income (GILTI) when applying the Indiana addback required for the section 250(a)(1)(B) deduction, which remains disallowed for Indiana purposes.
Tax amnesty
Senate Bill 243 expands eligibility for the upcoming tax amnesty program to include unpaid tax liabilities due for tax periods ending before Jan. 1, 2024, extending eligibility by one additional year. The eight-week amnesty is scheduled to run from July 15 through Sept. 15, 2026. Additional guidance from the Indiana Department of Revenue is expected.
Other administration and procedural changes
The bill also includes numerous administrative and enforcement-related provisions, including:
- Pass-through entity tax election (PTET) clarification: Provides a technical correction regarding credits for taxes paid to other states, aligning the statute with current department practices
- Federal adjustments: Extends the deadline for taxpayers to file state adjustments related to a federal revenue agent report (RAR) from 180 days to one year after federal finalization, effective beginning in tax year 2026
- Electronic notices: Authorizes electronic delivery of department notices and allows taxpayers to opt into electronic correspondence
- Tax warrants: Modifies tax warrant procedures
- Vehicle sales tax: Expands department authority and enforcement for sales and use tax compliance for motor vehicles, cargo trailers, aircraft, and watercraft, particularly in situations involving purchases by, or transfers to, certain business entities
- Responsible persons: Clarifies the definition of ‘responsible person’ and related liability for trust fund taxes
- Withholding on gambling winnings: Increases the withholding threshold for gambling winnings from $1,200 to $2,000 beginning in 2026, with inflation adjustments in subsequent years
- Penny phaseout: Includes provisions related to the penny phaseout and rounding for cash transaction and sales and use tax purposes
