How Does My State Treat Bonus Depreciation
One of the traps that we as tax advisors run into from time to time is sometimes forgetting the differences between federal and state rules for income taxation. For example, my state of Washington does not have a state income tax, so most of the time I do not deal with state income taxes for the majority of my clients. However, I think at my last count, I had clients in over 35 states, so I need to know how these differences affect those clients.
We have discussed numerous times the 100% bonus depreciation available to our farmers for qualified new equipment and farm buildings purchased or built in 2011. However, there are only 12 states that actually follow the federal rules. 29 states do not allow any bonus depreciation at all. Rather, the farmer adds back the federal deduction then depreciates over the normal life or takes Section 179 if allowed.
To help our farmers, I am reproducing a table here that shows how each state handles bonus depreciation.
| Allow 100% and 50% bonus | AL, AK, CO, DE, KS, LA, MO, MT, NE, NM, ND, UT |
| Allow 100% but not 50% bonus | IL |
| Allow 50% but not 100% bonus | None |
| Add back bonus and compute MACRS | AZ, AR, CT, DC, FL, GA, HI, ID, IN, IA, KY, ME, MD, MA, MI, MS, NH, NJ, NY, NC, OR, PA, RI, SC, TN, VT, VA, WV, WI |
| Add back a portion of bonus then depreciate five-year straight-line | MN (80%), OH (5/6) |
| Add back 80% of bonus then depreciate four-year straight-line | OK |
| Decoupled from bonus and from MACRS; generally follows pre-1981 ADR | CA |
| No income tax | NV, SD, TX, WA, WY |
The first line shows that states that follow the federal law and allow 100% and 50% bonus depreciation. For some reason, Illinois allows 100% but not 50%.
The fourth line shows all of the states that do not allow either 100% or 50% bonus deprecation. For these states, you must add back the bonus depreciation taken and then either take Section 179 if allowed and depreciate over the useful life.
The next three lines shows those states that have special rules including the fact that California does not follow the IRS on almost any depreciation rules. The last line shows the states that do not have any income tax.
These rules are generally as of October, 2011 and each state has its own unique rules and interpretations, therefore, this is only a guide. You must check with your tax advisor to see if these rules apply to your situation.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
We have 32.5 acres in Raymond Ca. We are trying to construct a 2000 square foot farm building. Since we are in CA. Are we disqualified from any type of bonus depreciation?
Thank You,
Dina