When Congress passes major tax legislation, Minnesota doesn’t automatically follow along. Understanding what our state has — and hasn’t — adopted from the federal One Big Beautiful Bill Act (OBBBA) is essential for smart tax planning. This spring, the Minnesota Legislature resolved much of that uncertainty by passing H.F. 2438, the 2026 omnibus tax bill. Here’s what Minnesota individuals and business owners need to know.

Why Minnesota Had to Act Separately

Minnesota operates under what’s called “static conformity,” meaning our state tax code is tied to the Internal Revenue Code as of a specific date — currently May 1, 2023. That means federal tax changes enacted after that date don’t automatically apply in Minnesota. When the OBBBA was signed into law on July 4, 2025, Minnesotans were left in a gray area: the federal rules changed, but state rules didn’t — yet. H.F. 2438, passed by the Legislature on May 17, 2026, resolves much of that uncertainty through a mix of conformity and intentional decoupling.

What Minnesota Is Conforming To

The good news is that Minnesota adopted many of the OBBBA’s core business tax provisions. Key conformity items include:

  • Permanent QBI Deduction. The 20% qualified business income (QBI) deduction, which had been set to expire, is now permanent at the federal level — and Minnesota conforms. This is a significant benefit for S-corps, partnerships, and sole proprietorships.
  • Bonus Depreciation. Minnesota now aligns with the federal 100% bonus depreciation for qualifying assets placed in service after January 19, 2025. One important caveat: Minnesota still requires an 80% add-back of this deduction on your state return, which is then subtracted ratably over the following five years. This means the full deduction isn’t immediate at the state level, but the benefit is preserved over time.
  • Pass-Through R&E Expensing. Pass-through entities — partnerships and S corporations — are now allowed full immediate expensing of domestic Section 174 research and experimentation costs at the state level. This is a meaningful change for pass-through business owners with active R&D activity.
  • Individual AMT Adjustments. The bill adjusts Minnesota’s individual alternative minimum tax rules to reflect the state’s selective approach to OBBBA. This could affect business owners who report pass-through income, opportunity zone gains, or foreign subsidiary income on their individual Minnesota returns.

What Minnesota Is Not Conforming To

Minnesota took a selective approach, and there are some notable areas where state and federal rules now differ:

  • Corporate R&E Expenditures. While pass-through entities can now immediately expense domestic R&E costs, corporations do not get the same treatment under Minnesota law. This remains one of the more significant nonconformity items for C-corporations with research and development activity, and may require adjustments on your Minnesota return.
  • Tips, Overtime, and Auto Loan Interest Deductions. The OBBBA created new temporary federal deductions for overtime pay, tip income, and vehicle loan interest. Minnesota chose not to adopt these provisions, which carry a combined estimated price tag of over $1 billion per biennium for the state.

Important Update for Business Owners: PTET Extended

If you operate a pass-through entity — a partnership, LLC taxed as a partnership, or S-corporation — this one matters. Minnesota’s pass-through entity tax (PTET) has been extended through tax year 2027 and was reenacted retroactively from January 1, 2026. The PTET remains a valuable workaround to the federal SALT deduction cap for eligible businesses, and its continuation is welcome news for Minnesota business owners who rely on it for planning.

Opportunity Zone Changes on the Horizon

One notable change that takes effect for tax years beginning after December 31, 2026: Minnesota will no longer follow the federal opportunity zone provisions. This means the federal deferral of gains and the permanent exclusion for long-held investments will no longer reduce your Minnesota taxes. If you currently have opportunity zone investments, now is a good time to revisit how this change affects your long-term tax planning.

What This Means for Your Tax Return

If any OBBBA provisions affected the income reported on your federal return, you may need to make an adjustment on your Minnesota return. The Minnesota Department of Revenue has updated forms and instructions to help calculate these nonconformity adjustments, particularly for tax years 2022 and after. If you amended a 2022 or 2023 federal return due to H.R. 1 changes, there may also be implications for your state filing.

Tax Planning Tips in Light of These Changes

  • If your business is a C-corporation with R&E expenditures, work with your advisor to understand how Minnesota’s nonconformity affects your state deductions and whether adjustments are needed.
  • Pass-through entities with R&D activity should confirm they are capturing the full immediate expensing benefit now available at the state level.
  • Keep the bonus depreciation add-back in mind when modeling equipment purchases — while the 5-year ratable subtraction does recover the full deduction, timing matters for cash flow and state tax planning.
  • Confirm that your pass-through entity tax elections are in order for 2026 now that PTET has been retroactively reenacted.
  • If you have opportunity zone investments, evaluate the impact of Minnesota’s decoupling and consider whether your strategy needs updating before the end of 2026.
  • Review your QBI strategy to take full advantage of the now-permanent federal deduction that Minnesota conforms to.

Navigate Minnesota’s OBBBA Conformity with DHA CPAs

The interplay between federal and state tax law adds complexity to planning, but it also creates opportunities for those who are proactive. Our team stays current on Minnesota legislative developments so you don’t have to. Connect with your team at DHA CPAs to review how these changes affect your specific situation and make the most of the 2026 tax year.