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State Conformity with Federal Bonus Depreciation Rules

By Jessica Lechuga, State Tax Law Editor with Bloomberg BNA
Publication Date: 08/31/2013

The expiration of bonus depreciation will require many companies, particularly those in capital-intensive industries, to pay significantly more tax in 2014 and in following years. Without bonus depreciation, the amount of depreciation expense corporations can claim will decrease substantially. Additionally, the amount of tax gain realized upon disposing of capital assets will increase, due to assets having low-to-no tax basis after previously taking bonus depreciation.

For additional information concerning bonus depreciation and other state tax issues, check out the Premier State Tax Library

The American Taxpayer Relief Act of 2012 (Pub. L. No. 112-240), enacted Jan. 2, 2013, extends for one additional year the current Section 168(k) 50 percent bonus depreciation provision that applied to qualified property acquired in 2008 through 2012. Thus, the Act extends bonus 50 percent depreciation to property acquired and placed in service before Jan. 1, 2014. The placed-in-service deadline is extended to Jan. 1, 2015, for certain aircraft and longer production period property.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Pub. L. No. 111-312), enacted Dec. 17, 2010, which generally extends and temporarily increases the current I.R.C. § 168(k) 50 percent bonus depreciation provision for property placed in service before Jan. 1, 2013. In addition, the Act provides for temporary 100 percent bonus depreciation for property acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012.

The Small Business Jobs Act of 2010 (P.L. 111-240, Title II), enacted Sept. 27, 2010, extends for one year the § 168(k) special allowance of first-year depreciation equal to 50% of the adjusted basis of qualified property to include qualified property acquired before Jan. 1, 2011, or acquired pursuant to a written binding contract which was entered into after Dec. 31, 2007, and before Jan. 1, 2011.

The American Recovery and Reinvestment Act of 2009 (ARRA) (P.L. 111-5), enacted Feb. 17, 2009, extends the additional first-year depreciation deduction for one year, generally through 2009 (2010 for certain longer-lived and transportation property). It also permits corporations to increase the research credit or minimum tax credit limitation by the bonus depreciation amount with respect to certain property placed in service in 2009 (2010 in the case of certain longer-lived and transportation property). The amendment applies to extension property, defined as property that is eligible qualified property solely because it meets the requirements under the extension of the special allowance for certain property acquired during 2009.

The Economic Stimulus Act of 2008 (P.L. 110-185), enacted Feb. 13, 2008, allows an additional first-year depreciation deduction equal to 50% of the adjusted basis of qualified property, for both regular tax and alternative minimum tax purposes for the tax year in which the property is placed in service. Original use of the property must commence with the taxpayer after Dec. 31, 2007, and the property must be placed in service during 2008. An extension of the placed in service date through 2009 is provided for certain property with a 10-year recovery period and certain transportation property.

List of States and Their Conformity with Federal Bonus Depreciation Rules

Below is a list of the states and their current decision as to the handling of bonus depreciation. While not all of the state legislatures have had a chance to meet and decide how they will handle the most recent extension of the deduction, we will update this page as it becomes known over time. Since many states have changed their handling of bonus depreciation over the years, we 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 through 2013, and Pre-2005:

Alabama allows the full Additional First-Year Depreciation deduction.

State Conformity 2008:

Alabama does not allow the Additional First-Year Depreciation deduction.

 

http://ador.state.al.us/

Alaska:

 

State Conformity 2008 through 2013, and Pre-2005:

Alaska allows the full Additional First-Year Depreciation deduction, with the exception of oil and gas corporations. Oil and gas corporations are required to use I.R.C. 167 as it was in effect on June 30, 1981.

 

http://www.revenue.state.ak.us/

Arizona

 

State Conformity 2008 through 2013, and Pre-2005:

Arizona does not allow the Additional First-Year Depreciation deduction.

 

http://www.revenue.state.az.us/

Arkansas

 

State Conformity 2008 through 2013, and Pre-2005:

Arkansas does not allow the Additional First-Year Depreciation deduction.

 

http://www.state.ar.us/dfa

California

 

State Conformity 2008 through 2013, and Pre-2005:

California does not allow the Additional First-Year Depreciation deduction.

 

http://www.ftb.ca.gov/

Colorado

 

State Conformity 2008 through 2013, and Pre-2005:

Colorado allows the full Additional First-Year Depreciation deduction.

 

http://www.revenue.state.co.us/

Connecticut

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

Delaware allows the full Additional First-Year Depreciation deduction.

 

http://www.state.de.us/revenue/

District of Columbia

 

State Conformity 2008 through 2013, and Pre-2005:

District of Columbia does not allow the Additional First-Year Depreciation deduction.

 

http://cfo.dc.gov

Florida

 

State Conformity 2008 through 2013:

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://dor.myflorida.com/dor/ 

Georgia

 

State Conformity 2008 through 2013, and Pre-2005:

 

Georgia does not allow the Additional First-Year Depreciation deduction.

 

http://www.etax.dor.ga.gov

Hawaii

 

State Conformity 2008 through 2013, and Pre-2005:

Hawaii does not allow the Additional First-Year Depreciation deduction.

 

http://www.state.hi.us/tax/

Idaho

 

State Conformity 2010 through 2013 and Pre-2005:

Idaho does not allow the Additional First-Year Depreciation deduction.

State Conformity 2005 through 2009:

Idaho allows the full Additional First-Year Depreciation deduction.

 

http://tax.idaho.gov

Illinois

 

State Conformity 2008 through 2013, and Pre-2005:

Illinois does not allow the Additional First-Year Depreciation deduction except for the 100% Additional First-Year Depreciation deduction, which is allowed for property places in service after Sept. 8, 2010 through Dec. 31, 2011.

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 2008 through 2013, and Pre-2005:

Indiana does not allow the Additional First-Year Depreciation deduction.

 

http://www.in.gov/dor/

Iowa

 

State Conformity 2008 through 2013:

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. For assets placed in service after May 5, 2003, and before Jan. 1, 2005, Iowa allows the Additional First-Year Depreciation deduction. 

 

http://www.iowa.gov/tax

Kansas

 

State Conformity 2008 through 2013, and Pre-2005:

Kansas allows the full Additional First-Year Depreciation deduction.

 

http://www.ksrevenue.org/

Kentucky

 

State Conformity 2008 through 2013, and Pre-2005:

Kentucky does not allow the Additional First-Year Depreciation deduction.

 

http://revenue.ky.gov

Louisiana

 

State Conformity 2008 through 2013, and Pre-2005:

Louisiana allows the full Additional First-Year Depreciation deduction.

 
 

http://www.rev.state.la.us

Maine

 

State Conformity 2008 through 2013:

Maine does not allow the Additional First-Year Depreciation deduction. 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. In 2011 and 2012, there is a Capital Investment Credit equal to 10% of the bonus depreciation claimed on the federal return for Maine property.

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 2008 through 2013, and Pre-2005:

Maryland does not allow the Additional First-Year Depreciation deduction.

 

http://www.comp.state.md.us/

Massachusetts

 

State Conformity 2008 through 2013, and Pre-2005:

Massachusetts does not allow the Additional First-Year Depreciation deduction.

 

http://www.dor.state.ma.us/

Michigan

 

State Conformity 2008 through 2013, and Pre-2005:

Michigan does not allow the Additional First-Year Depreciation deduction.

 

http://www.michigan.gov/treasury

Minnesota

 

State Conformity 2008 through 2013, 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 2008 through 2013, and Pre-2005:

Mississippi does not allow the Additional First-Year Depreciation deduction.

 

http://www.dor.ms.gov

Missouri

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

Montana allows the full Additional First-Year Depreciation deduction.

 

http://www.discoveringmontana.com/revenue/default.asp

Nebraska

 

State Conformity 2008 through 2013:

Nebraska allows the full Additional First-Year Depreciation deduction.

State Conformity Pre-2005:

For income tax years after Sept. 10, 2001 and before tax year 2006, Nebraska requires that you add back 85% of the federal Additional First-Year Depreciation deduction in the year in which it is claimed. For bonus depreciation added-back in tax years 2000 through 2002, 20% of the addback may be deducted in the first taxable year beginning on or after January 1, 2005, and in each of the next four years. For bonus depreciation added-back in tax years 2003 through 2005, 20% of the addback may be deducted in the first taxable year beginning on or after January 1, 2006, and in each of the next four years.

 

http://www.revenue.state.ne.us

Nevada

 

State Conformity 2008 through 2013, and Pre-2005:

Nevada has no state income tax requirement.

 

http://tax.state.nv.us/

New Hampshire

 

State Conformity 2008 through 2013, and Pre-2005:

New Hampshire does not allow the Additional First-Year Depreciation deduction.

 

http://www.nh.gov/revenue

New Jersey

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

New Mexico allows the full Additional First-Year Depreciation deduction.

 

http://www.tax.newmexico.gov

New York

 

State Conformity 2008 through 2013:

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.ny.gov

http://www.nyc.gov/html/dof/html/home/home.shtml

North Carolina

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

North Dakota allows the full Additional First-Year Depreciation deduction.

 

http://www.nd.gov/tax

Ohio

 

State Conformity 2008 through 2013:

Ohio’s Corporate Franchise Tax was entirely phased out for most types of business entities in 2010. Most business entities are subject to the Commercial Activity Tax, which is measured by gross receipts.

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 2010 through 2013:

State Conformity 2008 and 2009:

Oklahoma allows the full Additional First-Year Depreciation deduction.

 

Oklahoma requires that you add back 80% of the 50% 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 2011 through 2013:

State Conformity 2009 and 2010:

Oregon allows the full Additional First-Year Depreciation deduction. 


Oregon does not allow the Additional First-Year Depreciation deduction. 

State Conformity 2008 and Pre-2005:

Oregon allows the full Additional First-Year Depreciation deduction. 

 

http://egov.oregon.gov/DOR

Pennsylvania

 

State Conformity  2010 through 2013:

 

 

State Conformity 2009, 2008, and Pre-2005:

Pennsylvania does not allow the 50% Additional First-Year Depreciation deduction for either corporate or individual taxpayers. (See below for addback.) However, Pennsylvania allows the full 100% Additional First-Year Depreciation deduction for property placed in service after Sept. 8, 2010 through Dec. 31, 2011.

Pennsylvania does not allow the Additional First-Year Depreciation deduction for either corporate or individual taxpayers. Add back the deduction and then deduct 3/7 times the Section 167 depreciation until disallowed amount is recovered.

 

http://www.revenue.state.pa.us/

Rhode Island

 

State Conformity 2008 through 2013, and Pre-2005:

Rhode Island does not allow the Additional First-Year Depreciation deduction.

 

http://www.tax.state.ri.us/

South Carolina

 

State Conformity 2008 through 2013, 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 2008 through 2013, 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 2008 through 2013:

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 2008 through 2013, and Pre-2005:

Texas does not allow the Additional First-Year Depreciation deduction.

 

http://www.window.state.tx.us/m23taxes.html

Utah

 

State Conformity 2008 through 2013, and Pre-2005:

Utah allows the full Additional First-Year Depreciation deduction.

 

http://tax.utah.gov

Vermont

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

Virginia does not allow the Additional First-Year Depreciation deduction except for qualifying disaster property under IRS Code Section 168(n).

 

http://www.tax.virginia.gov

Washington

 

State Conformity 2008 through 2013, and Pre-2005:

Washington has no state income tax requirement.

 

http://dor.wa.gov/

West Virginia

 

State Conformity 2008 through 2013, and Pre-2005:

West Virginia allows the full Additional First-Year Depreciation deduction.

 

http://www.wva.state.wv.us/wvtax

Wisconsin

 

State Conformity 2008 through 2013:

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 2008 through 2013, and Pre-2005:

Wyoming has no state income tax requirement.

 

http://revenue.state.wy.us/

 

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