BNA Tax Article | BNA Software

State Conformity with Federal Depreciation Rules

By Nancy Faussett, CPA
Publication date: 03/05/2010

The Economic Stimulus Act of 2008 reactivated the 50% Additional First-Year Depreciation deduction (a.k.a., bonus depreciation) and the American Recovery and Reinvestment Act of 2009 extended it for one year. Currently the deduction for bonus depreciation, per IRS Code Section 168(k), is for qualifying property placed in service in 2009 (and for certain property placed in service in 2010). Although many states have decided to follow the federal rules and have adopted the bonus depreciation provision, others have opted to "decouple" or disassociate from the new law.

Below is a list of the states and their current decision as to the handling of bonus depreciation. Since many states have changed their handling of bonus depreciation over the years, I have noted each state's current treatment as well as its earlier position.

View a state below to see if it allows bonus depreciation. There is also a link to each state's tax site so that you can keep up with any changes that might be made.

Alabama
State Conformity 2009 and Pre-2005:	Alabama allows the Additional First-Year Depreciation deduction.
State Conformity 2008:	Alabama does not allow the full Additional First-Year Depreciation deduction.
	http://ador.state.al.us/
Alaska:
State Conformity 2009, 2008, and Pre-2005:	Alaska allows the full Additional First-Year Depreciation deduction, with the exception of oil and gas corporations. Oil and gas corporations have special depreciation provisions computed on the basis of I.R.C. 167 as of June 30, 1981.
	http://www.revenue.state.ak.us/
Arizona
State Conformity 2009, 2008, and Pre-2005:	Arizona does not allow the Additional First-Year Depreciation deduction.
	http://www.revenue.state.az.us/
Arkansas
State Conformity 2009, 2008, and Pre-2005:	Arkansas does not allow the Additional First-Year Depreciation deduction.
	http://www.state.ar.us/dfa
California
State Conformity 2009, 2008, and Pre-2005:	California does not allow the Additional First-Year Depreciation deduction.
	http://www.ftb.ca.gov/
Colorado
State Conformity 2009, 2008, and Pre-2005:	Colorado allows the full Additional First-Year Depreciation deduction.
	http://www.revenue.state.co.us/
Connecticut
State Conformity 2009 and 2008:	Connecticut does not allow the Additional First-Year Depreciation deduction for corporations. Individual taxpayers (sole proprietorships) are allowed to claim it.
State Conformity Pre-2005:	Connecticut does not allow the Additional First-Year Depreciation deduction.
	http://www.ct.gov/drs
Delaware
State Conformity 2009, 2008, and Pre-2005:	Delaware allows the full Additional First-Year Depreciation deduction.
	http://www.state.de.us/revenue/
District of Columbia
State Conformity 2009, 2008, and Pre-2005:	District of Columbia does not allow the Additional First-Year Depreciation deduction.
	http://cfo.dc.gov
Florida
State Conformity 2009 and 2008:	Florida does not allow the Additional First-Year Depreciation deduction. However, for the addback year and each of the next six taxable years, the legislation allows a taxpayer to subtract 1/7 of the amount that was added back.
State Conformity Pre-2005:	Florida allows the 30% Additional First-Year Depreciation deduction enacted by the 2002 Tax Act. Although Florida did not initially allow the 50% Additional First-Year Depreciation deduction enacted by the 2003 Tax Act, it decided to conform with the 50% Federal deduction as of January 1, 2004.
	http://www.state.fl.us/dor/
Georgia
State Conformity 2009, 2008, and Pre-2005:	Georgia does not allow the Additional First-Year Depreciation deduction.
	http://www.etax.dor.ga.gov
Hawaii
State Conformity 2009, 2008, and Pre-2005:	Hawaii does not allow the Additional First-Year Depreciation deduction.
	http://www.state.hi.us/tax/
Idaho
State Conformity 2009 and 2008:	Idaho allows the full Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Idaho does not allow the Additional First-Year Depreciation deduction.
	http://tax.idaho.gov
Illinois
State Conformity 2009, 2008, and Pre-2005:	Illinois does not allow the Additional First-Year Depreciation deduction. Note: When an asset is disposed, whatever gain or loss is reported for federal purposes is also reported for Illinois purposes. Therefore, to ensure that you receive a deduction for the entire cost of the asset, all the Illinois changes to the federal depreciation amounts should be reversed so that the total state depreciation will then be equal to the total federal depreciation.
	http://www.revenue.state.il.us/
Indiana
State Conformity 2009, 2008, and Pre-2005:	Indiana does not allow the Additional First-Year Depreciation deduction.
	http://www.in.gov/dor/
Iowa
State Conformity 2009 and 2008:	Iowa does not allow the Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Iowa does not allow the deduction for property placed in service before 2003. As of January 1, 2003, Iowa allows the Additional First-Year Depreciation deduction. If a corporation has already filed its 2003 tax return, it may file an amended return to claim the deduction. If the 50% deduction was not claimed on the 2003 return, taxpayers have until April 30, 2007, to file an amended return or they may reflect the change on their 2004 return. Taxpayers that filed their 2004 Iowa return prior to Feb. 24, 2005, and did not reflect this adjustment may make this adjustment on their 2005 Iowa return.
	http://www.iowa.gov/tax
Kansas
State Conformity 2009, 2008, and Pre-2005:	Kansas allows the full Additional First-Year Depreciation deduction.
	http://www.ksrevenue.org/
Kentucky
State Conformity 2009, 2008, and Pre-2005:	Kentucky does not allow the Additional First-Year Depreciation deduction.
	http://revenue.ky.gov
Louisiana
State Conformity 2009, 2008, and Pre-2005:	Louisiana allows the full Additional First-Year Depreciation deduction.
	http://www.rev.state.la.us
Maine
State Conformity 2009 and 2008:	For 2009 and 2008, Maine requires that you add back the difference between federal depreciation claimed and depreciation that would have been claimed if the Additional First-Year Depreciation was not claimed. In subsequent years, there is an adjustment for the difference between federal depreciation claimed and regular MACRS depreciation claimed without any Additional First-Year Depreciation. Any remaining recapture related to bonus depreciation is allowed in the year the asset is disposed.
State Conformity Pre-2005:	For 2002, Maine requires that you add back 100% of the federal Additional First-Year Depreciation deduction claimed. You can then deduct the amount of the add back beginning two years after it was disallowed, in equal installments over the remaining life of the asset. Any Additional First-Year Depreciation deduction claimed for the 2001 tax year is allowed. For property placed in service after 2002, add back 100% of the federal Additional First-Year Depreciation deduction claimed, but in the first year following the placed-in-service year you can deduct 5% of the disallowed amount. Thereafter, you can deduct the remaining 95% in equal installments, beginning two years after the placed-in-service year. Disposal of the property does not change the recapture period.
	http://www.state.me.us/revenue/homepage.html
Maryland
State Conformity 2009, 2008, and Pre-2005:	Maryland does not allow the Additional First-Year Depreciation deduction.
	http://www.comp.state.md.us/
Massachusetts
State Conformity 2009, 2008, and Pre-2005:	Massachusetts does not allow the Additional First-Year Depreciation deduction.
	http://www.dor.state.ma.us/
Michigan
State Conformity 2009, 2008, and Pre-2005:	Michigan does not allow the Additional First-Year Depreciation deduction.
	http://www.michigan.gov/treasury
Minnesota
State Conformity 2009, 2008, and Pre-2005:	Minnesota requires that you add back 80% of the federal Additional First-Year Depreciation deduction in the year in which it is claimed. You can then deduct the addback in equal parts over the next five years following the addback year.
	http://www.taxes.state.mn.us/
Mississippi
State Conformity 2009, 2008, and Pre-2005:	Mississippi does not allow the Additional First-Year Depreciation deduction.
	http://www.mstc.state.ms.us/
Missouri
State Conformity 2009 and 2008:	Missouri allows the full Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Missouri allows the full 30% deduction except for assets purchased between July 1, 2002 and June 30, 2003. For assets purchased between July 1, 2002 and June 30, 2003, Missouri does not allow the Additional First-Year Depreciation deduction
	http://dor.mo.gov/
Montana
State Conformity 2009, 2008, and Pre-2005:	Montana allows the full Additional First-Year Depreciation deduction.
	http://www.discoveringmontana.com/revenue/default.asp
Nebraska
State Conformity 2009 and 2008:	Nebraska allows the full Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Nebraska requires that you add back 85% of the federal Additional First-Year Depreciation deduction in the year in which it is claimed. You can then deduct 20% of the addback in the first taxable year beginning on or after January 1, 2005 and in each of the next four years.
	http://www.revenue.state.ne.us
Nevada
State Conformity 2009, 2008 and Pre-2005:	Nevada has no state income tax requirement.
	http://tax.state.nv.us/
New Hampshire
State Conformity 2009, 2008, and Pre-2005:	New Hampshire does not allow the Additional First-Year Depreciation deduction.
	http://www.state.nh.us/revenue/
New Jersey
State Conformity 2009 and 2008:	New Jersey does not allow the Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	New Jersey does not allow the Additional First-Year Depreciation deduction in tax years beginning on or after January 1, 2002. Any Additional First-Year Depreciation deduction claimed for the 2001 tax year is allowed.
	http://www.state.nj.us/treasury/taxation/
New Mexico
State Conformity 2009, 2008, and Pre-2005:	New Mexico allows the full Additional First-Year Depreciation deduction.
	http://www.state.nm.us/tax/
New York
State Conformity 2009 and 2008:	New York does not allow the Additional First-Year Depreciation deduction except for qualified Resurgence Zone and New York Liberty Zone property. New York City does not allow the deduction unless the asset is located in the Resurgence Zone or New York Liberty Zone
State Conformity Pre-2005:	New York (excluding New York City) allows the Additional First-Year Depreciation deduction for property placed in service after September 10, 2001. However, starting with tax years beginning in 2003, for property placed in service on or after June 1, 2003, New York only allows the Additional First-Year Depreciation deduction for qualified Resurgence Zone and New York Liberty Zone property. New York City does not allow the deduction unless the asset is located in the Resurgence Zone or New York Liberty Zone.
	http://www.tax.state.ny.us/ http://www.ci.nyc.ny.us/html/dof/home.html
North Carolina
State Conformity 2009 and 2008:	North Carolina requires that you add back 85% of the federal Additional First-Year Depreciation deduction in the year in which it was claimed. The disallowed deduction can then be claimed over five years, 20% a year, beginning in the year after the addback year.
State Conformity Pre-2005:	North Carolina requires that you add back 100% of the federal Additional First-Year Depreciation deduction claimed in 2001 and 2002. In 2003 and 2004, you only have to add back 70% of any federal Additional First-Year Depreciation deduction claimed. The disallowed deduction can then be claimed over five years, at 20% a year, beginning in the 2005 tax year.
	http://www.dor.state.nc.us
North Dakota
State Conformity 2009, 2008, and Pre-2005:	North Dakota allows the full Additional First-Year Depreciation deduction.
	http://www.nd.gov/tax
Ohio
State Conformity 2009 and 2008:	Ohio requires that you add back 5/6 of the federal Additional First-Year Depreciation deduction in the year in which it is claimed. This is the same as for years ending after June 4, 2002 (see below).
State Conformity Pre-2005:	For Taxable Years Ending After June 4, 2002: Ohio requires that you add back 5/6 of the federal Additional First-Year Depreciation deduction in the year in which it is claimed. You can then deduct 1/5 of the addback amount in each of the next five years, following the year of the addback. Furthermore, these adjustments for depreciation do not change the adjusted basis of any asset for computing the gain or loss on disposal. If you dispose of an asset during the adjustment period, the gain or loss recognized for Ohio purposes will be the same as for federal purposes. The taxpayer can continue deducting the allowable Additional First-Year Depreciation deduction amount even though the asset is disposed. For Taxable Years Ending Prior to June 5, 2002: If you claimed the Additional First-Year Depreciation deduction, you must either: Recalculate Ohio taxable income using the depreciation expense available without the Additional First-Year Depreciation deduction, or Elect to compute Ohio taxable income using the current law. Therefore, you would add back 5/6 of the federal Additional First-Year Depreciation deduction in the year it was claimed, deducting 1/6 of the federal amount over the next five years. In either case, if the return has already been filed, you must file an amended return.
	http://www.state.oh.us/tax/
Oklahoma
State Conformity 2009 and 2008:	Oklahoma requires that you add back 80% of the Additional First-Year Depreciation deduction in the year in which it is claimed. You can then deduct the add back in equal parts over the next four years following the addback year.
State Conformity Pre-2005:	Oklahoma requires that you add back 80% of the federal 30% Additional First-Year Depreciation deduction, enacted in the 2002 Tax Act, in the year in which it is claimed. You can then deduct the add back in equal parts over the next four years following the add back year. Oklahoma allows the full 50% Additional First-Year Depreciation deduction enacted by the 2003 Tax Act.
	http://www.oktax.state.ok.us
Oregon
State Conformity 2009: State Conformity 2008 and Pre-2005:	Oregon does not allow the Additional First-Year Depreciation deduction. Oregon allows the full Additional First-Year Depreciation deduction. However, it may not allow it in 2009.
	http://egov.oregon.gov/DOR
Pennsylvania
State Conformity 2009, 2008, and Pre-2005:	Pennsylvania does not allow the Additional First-Year Depreciation deduction for either corporate or individual taxpayers.
	http://www.revenue.state.pa.us/
Rhode Island
State Conformity 2009, 2008, and Pre-2005:	Rhode Island does not allow the Additional First-Year Depreciation deduction.
	http://www.tax.state.ri.us/
South Carolina
State Conformity 2009, 2008, and Pre-2005:	South Carolina does not allow the Additional First-Year Depreciation deduction.
	http://www.sctax.org/DOR/default.htm
South Dakota
State Conformity 2009, 2008 and Pre-2005:	South Dakota has no corporate or personal state income tax requirement.
	http://www.state.sd.us/revenue/revenue.html
Tennessee
State Conformity 2009 and 2008:	Tennessee does not allow the Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Tennessee does not allow the Additional First-Year Depreciation deduction for tax years beginning on or after July 15, 2002. Any Additional First-Year Depreciation deduction claimed in a tax year ending prior to July 15, 2002 is allowed.
	http://www.state.tn.us/revenue/
Texas
State Conformity 2009, 2008, and Pre-2005:	Texas does not allow the Additional First-Year Depreciation deduction.
	http://www.window.state.tx.us/m23taxes.html
Utah
State Conformity 2009, 2008, and Pre-2005:	Utah allows the full Additional First-Year Depreciation deduction.
	http://tax.utah.gov
Vermont
State Conformity 2009 and 2008:	Vermont does not allow the Additional First-Year Depreciation deduction for corporations or for individuals.
State Conformity Pre-2005:	Vermont does not allow the Additional First-Year Depreciation deduction for corporations. Individual taxpayers are allowed to claim it.
	http://www.state.vt.us/tax/
Virginia
State Conformity 2009, 2008, and Pre-2005:	Virginia does not allow the Additional First-Year Depreciation deduction except for GO Zone property under IRS Code Section 1400N.
	http://www.tax.virginia.gov
Washington
State Conformity 2009, 2008, and Pre-2005:	Washington has no state income tax requirement.
	http://dor.wa.gov/
West Virginia
State Conformity 2009, 2008, and Pre-2005:	West Virginia allows the full Additional First-Year Depreciation deduction.
	http://www.state.wv.us/taxdiv/
Wisconsin
State Conformity 2009 and 2008:	Wisconsin does not allow the Additional First-Year Depreciation deduction.
State Conformity Pre-2005:	Wisconsin does not allow the Additional First-Year Depreciation deduction. If the deduction was claimed on your 2001 return, you should amend it. However, if you file the amended return on or before the due date (excluding extensions) of your 2002 franchise or income tax return, the Department of Revenue will waive any interest charges on the recalculated depreciation amount.
	http://www.dor.state.wi.us
Wyoming
State Conformity 2009, 2008, and Pre-2005:	Wyoming has no state income tax requirement.
	http://revenue.state.wy.us/

Additional Resources

Additional First-Year Depreciation Deduction
Learn about what it is, which property qualifies for it, how to calculate it, and much more.

Depreciation for State Tax Returns
Read about the states dilemma and what you can do to simplify your calculations.