Budget Bill Brings Significant Changes to Maine’s Tax Laws

By Lori Paci April 15, 2026

Co-authored by Merrill Barter

A Maine Budget bill (L.D. 2212) was signed into law by Governor Janet Mills on April 10, 2026. The nearly $500 million budget included some headline grabbing additions to Maine tax statutes and some other, quieter changes that have a significant impact. The following is a high-level review of some of the changes it sets in motion.

Conformity to the One Big Beautiful Bill

In July of 2025, the federal government passed sweeping tax law changes as part of a large legislative packet known as the One Big Beautiful Bill (OBBB). OBBB made numerous changes to federal tax provisions affecting both individuals and businesses. Like many states, Maine performed a full legislative review of the impacts that each of these changes would have on revenue and taxpayers at the state level and reviewed the interaction between state and federal tax law. After such review, and after an interim temporary instruction from the Governor in the fall of 2025, the Budget finally addresses many of the changes.

The Budget updated Maine’s conformity with the Internal Revenue Code (IRC) to December 31, 2025, meaning that the starting point when computing Maine taxable income is federal adjusted gross income under the IRC in effect as of this date. Maine law must “decouple” from specific provisions that will not be followed.

What Maine kept

Per the Budget, Maine now conforms to the increased IRC §179 expense limits in OBBB. Under OBBB, the federal government doubled the maximum deduction to $2.5 million with a phase-out threshold of $4 million in equipment purchases. The increased limits apply to property placed in service in taxable years beginning after December 31, 2024. The purpose of the change is to allow flexibility for immediate deduction for small and mid-sized businesses for purchases in the year that the assets are placed in service. Maine now follows suit in its allowance of the expanded limits.

Maine also now conforms to the calculation of the Business Interest Expense Deduction under IRC §163(j). OBBB restored the EBITDA-based calculation by allowing businesses to add back depreciation, amortization, and depletion when calculating Adjusted Taxable Income (ATI). This change makes permanent an increase to the 30% ATI limitation threshold and benefits many businesses by generally increasing the amount of interest deductible in any particular year.

Finally, the Budget brings Maine into full conformity with changes to the treatment of domestic research and experimental (R&E, also referred to as R&D) expenses for small businesses under the new provisions of IRC §174A as added by OBBB. The expenses are fully deductible in the year incurred rather than amortized over 5 years and eligible small businesses (generally <$30M-$31M average gross receipts) can amend tax returns for 2022–2024 to expense rather than capitalize R&E costs. This addition is a positive change that accelerates expense for small business taxpayers, while leaving onerous requirements on larger entities that delay their deductions.

What Maine adjusted

Even though the new budget provides some relief for business and individuals in the state, it created a number of new modifications required to convert federal AGI into Maine taxable income. These new provisions are meant to decouple Maine from specific items in OBBB.

First, the state does not conform to “No tax on tips,” “No tax on overtime,” the car loan interest deduction, or the senior exemption provisions of the OBBB for personal income tax purposes. These deductions will be available only for federal tax purposes and will not carry over to Maine tax returns.

Second, the state will not immediately conform to the expensing of domestic R&E expenses for large corporations. For tax years beginning in 2025 through 2029, the state will phase-in its conformity to the new federal IRC §174A(a), and reverses the mandatory 5-year capitalization rules (under §174) for US-based R&E expenses by instead allowing taxpayers to immediately deduct these expenditures for tax years beginning after December 31, 2024. For Maine, a portion of the expenses deducted for federal purposes must be added back and then recovered via amortization deductions in subsequent years. The amortization is calculated ratably beginning in the year following the year of the addition modification through tax years beginning in 2030. The amounts are as follows:

• 2025 – 100% (recovered in 2026 – 2030)
• 2026 – 70% except 100% for deductions claimed pursuant to §70302(f)(2) of the Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, Public Law 119-21, (Recovered in 2027 – 2030)
• 2027 – 50% (Recovered in 2028 – 2030)
• 2028 – 30% (Recovered in 2029 – 2030)
• 2029 – 10% (Recovered in 2030)

For taxable years beginning on or after January 1, 2025, and before January 1, 2031, an amount equal to the sum of the following is subtracted, to recapture R&E expenses capitalized under the IRC for years prior to 2025:

• An amount equal to the amortization deductions allowable for domestic research or experimental expenditures under former §174 of the Code, prior to the enactment of OBBB, with respect to expenditures that are paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2026; and
• An amortization deduction for domestic R&E expenditures, not otherwise described in the statute for which an addition was required in a prior tax year.

Third, the state will now require an addition modification for depreciation deductions taken in accordance with IRC §168(n). IRC § 168(n) was created under the OBBB to supply a new depreciation deduction for Qualified Production Property (QPP) which allows taxpayers a temporary special depreciation allowance equal to 100% of the adjusted basis of the QPP. For Maine tax purposes, the amount added back is then recaptured with depreciation deductions based on the asset’s life.

Fourth, the state now requires an addition modification equal to the amount of gain excluded from federal gross income pursuant to §1202(a)(1) with respect to sales of qualified small business stock first acquired after July 3, 2025.

Fifth and finally, the Budget also created modifications of the provisions included in the Opportunity Zone incentive program.

• IRC §1400Z-2(a) allows taxpayers to elect to defer federal taxes on capital gains that are reinvested into a Qualified Opportunity Fund (QOF) within 180 days of a sale or exchange. Maine now requires an addition modification equal to the amount of gain excluded from federal gross income with respect to amounts invested in a qualified opportunity zone after December 31, 2026.
• If the amount already added back for Maine is subsequently included in FTI, it may be subtracted to the extent included in federal adjusted gross income.
• Also, an addition is now required upon the sale of any property acquired after December 31, 2026, in an amount equal to an increase in basis per IRC §1400Z-2(b)(2)(B)(iii). That section provides a federal 10% step-up in tax basis for Qualified Opportunity Fund (QOF) investments held for at least five years. This rule reduces the taxable gain when the deferred capital gain is eventually recognized, specifically applying to investments held for at least five years by the required 2026 deadline.

Together, these features neutralize, for Maine tax purposes, the benefits of the QOF enjoyed for federal tax purposes.

Elective pass-through entity tax

Originally spurred by federal law changes in 2017 (and now 2025) that set a cap on personal deduction of state and local taxes at the federal level, many states have enacted elective pass-through entity (PTE) level taxes. Maine now joins the list of more than thirty states with such elections, as OBBB extended the cap on state and local tax deductions. This is one of the most significant additions to Maine tax laws in the new Budget.

Traditionally, PTEs such as partnerships and S-corps have passed through all items of income to their partners or shareholders to be taxed at the owner level on their personal or other returns. The elective PTE tax allows for the tax burden to remain at the entity level and passes a refundable credit for 90% of the tax paid by the entity to the qualified partners/shareholders, allowing them in some cases to take full advantage of federal deductions for state taxes paid that would otherwise be limited by the $40,000 State and Local Tax (SALT) cap under OBBB.

Maine’s new elective PTE Tax applies to S corporations, partnerships, estates and trusts. C-corps and sole proprietors are not eligible to elect into the tax. However, an eligible owner can have a direct interest in an entity through a single-member LLC. Qualified members are individuals, trusts and estates that are direct members. If the election is made, all qualified members must participate. There is no opt-out available for qualified owners who don’t want to participate.

Facts about the tax:

• The election will be available for tax years beginning on or after January 1, 2026.
• The election must be made annually.
• The “distributive share” of income subject to the tax is 100% of the income for resident owners, and the apportioned share of income (based on the entity’s Maine apportionment factor) for nonresidents.
• The tax is calculated at 7.15% of the taxable distributive share of income (Maine’s current top individual rate, excluding a new surtax discussed later).
• Withholding of the remaining 10% of the tax due is required for the nonresident members.
• If the nonresidents have no other Maine-source income, and the PTE pays 100% of their tax, they are not required to file nonresident Maine income tax returns. If the nonresident’s Maine-source income is at a level that will be subject to the 2% surtax, estimated payments may be required.
• Estimated payments may be required for residents due to the credit being 90% of the tax paid, and the 2% surtax.
• The entity will be required to make estimated payments.

In conjunction with the enactment of the PTE tax, Maine changed the calculation of the “Credit for Taxes Paid to Other States” that a Maine resident would compute to account for income tax paid on earned income (such as wages or income from a PTE) in Maine and another state or states (“double-taxed” income). Prior to tax years beginning on or after January 1, 2026, the credit calculation could include only taxes paid to another state directly by the individual. Any PTE taxes could not be included in the calculation, which meant that any Maine resident who was an owner in a PTE that participated in another state’s PTE tax would get “double-taxed” on some income. For tax years beginning in 2026 and thereafter, the calculation has been changed. A Maine resident member of a PTE that pays a PTE tax in another state and receives a pass-through tax credit against that state’s taxes can include the pass-through credit (with some limitations) in the calculation of the Maine credit. This means that Maine resident owners of PTEs that participate in other states’ PTE taxes will not be penalized. One thing to note is that the Budget did not include the New Hampshire Business Profits Tax as a “PTE tax” that can be included in this credit calculation. Therefore, owners of PTEs that that pay the New Hampshire Business Profits Tax will still not be able to claim a credit for this.

As Maine Revenue Services releases more detailed information on the implementation of the tax, we will follow-up with another article.

Personal income specific provisions not tied to OBBB

The Budget bill made further changes to the tax system for personal income taxpayers that are completely unrelated to OBBB.

The Budget added surtax on Maine income of high earners. There is now a 2% tax surcharge on taxable income over specific high-income thresholds. The surcharge applies on taxable income above:

• $1,500,000 for MFJ or Surviving Spouses
• $1,000,000 for Single filers
• $1,000,000 for Head of Household
• $750,000 for Married Filing Separate

Often referred to as “millionaire’s” taxes, this change follows the enactment of similar surtaxes and graduated rates aimed at taxing incomes over $1 million at a higher rate in Massachusetts, New York, New Jersey, Minnesota, and California.

The dependent exemption credit equal to $300 for each qualifying child and dependent of the taxpayer for whom the taxpayer was eligible to claim the federal child tax credit has been made permanent for all qualifying taxpayers subject to the phaseouts as were previously in place for tax years beginning as of January 1, 2025.

Other notable provisions

The Budget also makes changes to the Hospital Tax, the definition of “Homestead” for homestead exemptions related to real estate taxes paid on a primary residence, updates owner notification requirements and application and proof requirements for property tax exemptions, and sets forth specific information for surviving relatives of deceased veterans for specific property tax abatements.

Certain property tax exemptions are being replaced with updated rules as of April 1, 2027, including:

• Certain exemptions for estates of legally blind persons;
• Certain exemptions for estates of veterans;
• Certain exemptions relating to homesteads; and
• Certain exemptions for cooperative housing corporations.

Reach out

The above summary of the provisions of the Maine 2026-2027 Budget is a high-level overview. How each section applies to an individual or a business may vary depending on numerous factors. For more information and to discuss the specifics of your situation, please contact your BNN tax advisor at 800.244.7444.