Watch Your State Disconnect on Tax Depreciation
As we have previously noted in a couple of posts, the Section 179 deduction has been substantially increased for this year and next year to $500,000 and the 50% bonus depreciation has been re-enacted for 2010. However, most if not almost all states do not follow this rule. I know that Oregon does not follow the federal rule and limits the Section 179 to what the old federal law amounts were with out the stimulus changes and does not follow the bonus depreciation.
For some states, this difference can be substantial. For example, if your state limits the Section 179 deduction to $25,000 and you purchase qualified property in 2010 and take the full $500,000 deduction on your federal return, your state will require you to add back the $475,000 excess, however, this excess will be allowed to be depreciated under the normal rules.
This means for 2010, that your state income tax may be at least $40,000 or more higher than what you were counting on. Make sure that you take this into account when doing your year-end tax estimates.
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.
If you live in a state that couples Fed bonus depreciation but erect a bin and rent it to a Company in a state that does not couple bonus depreciation, does the nonresident bin-builder get the bonus depreciation on his or her resident return?