Article | by Chris Walker, CPA

Oregon Senate Bill 1507 (SB 1507), which was recently signed by the Governor, will change how Oregon taxable income is calculated. Beginning on or after January 1, 2026, Oregon will “disconnect” from several key provisions of the recent federal tax legislation, House Bill 1, also known as the One Big Beautiful Bill Act. This means that certain federal tax benefits will not be included on Oregon tax returns. For many taxpayers, federal and Oregon tax liabilities may begin to diverge in meaningful ways, making advance planning increasingly important.

Historically, Oregon’s tax system has closely conformed to the federal tax code, using federal taxable income as the starting point for state calculations. When federal law reduces taxable income, Oregon’s tax collections are correspondingly reduced unless the state takes specific action, which legislators have done with SB 1507. This legislation represents a deliberate shift away from that conformity in certain areas, introducing new complexity for taxpayers.

One of the most significant changes affects bonus depreciation. Under current federal law, businesses may deduct 100% of the cost of qualifying property in the year it is placed in service. This immediate expensing can substantially reduce federal taxable income and improve short-term cash flow. Under SB 1507, however, Oregon will not conform to this treatment. Some bonus depreciation claimed on the federal return would be added back for Oregon purposes, and the disallowed amount would be depreciated over the property’s depreciable life for state tax purposes. Although the full deduction is ultimately allowed in Oregon, the timing difference matters. Businesses making substantial capital investments may face higher Oregon taxable income and increased state tax liability in the year of purchase, even while benefiting from federal deductions. This shift makes cash flow forecasting and multi-year tax modeling more important than ever when planning equipment acquisitions beginning in 2026.

Another important area of divergence involves gains from the sale of Qualified Small Business Stock (QSBS). Federal law allows eligible taxpayers to exclude qualifying QSBS gains, often generating substantial tax savings for entrepreneurs and early-stage investors. Under SB 1507, Oregon would not allow this exclusion. Any gain excluded federally would be added back and taxed at the state level. For founders and investors evaluating potential exits, this difference could materially affect after-tax returns. A transaction that appears highly tax-efficient from a federal perspective may produce a different outcome once Oregon taxation is considered. Incorporating both federal and state consequences into investment analysis and exit planning will be essential.

As Oregon’s tax system moves further away from federal conformity, compliance will become more complex. Taxpayers may need to maintain separate depreciation schedules, track state-specific adjustments, and carefully document transactions that are treated differently under federal and Oregon rules. While these changes do not eliminate tax benefits, they alter the timing and overall financial impact. We recommend reviewing planned equipment purchases, investment transactions, and potential business sales in light of these developments. 

Navigating the growing divergence between federal and state tax law is essential for minimizing your overall tax burden and making informed business decisions. We are here to help you understand how these rules specifically affect your operations and to develop strategies that optimize your financial position. 

Those interested in understanding how SB 1507 may impact their circumstances are encouraged to reach out. Proactive planning can help reduce surprises and support the most favorable overall outcome.

About Geffen Mesher:
Geffen Mesher, a Portland-based accounting firm, focuses on providing ongoing financial strategy, accounting and tax advisory services for businesses and individuals. We serve numerous industries and create solutions that help our diverse clientele plan and build their financial futures wisely. Learn more at gmco.com.