Adjustment for Additional First-Year Depreciation

North Carolina did not adopt the additional first-year depreciation provisions in the federal Jobs Creation and Worker Assistance Act of 2002 or the federal Jobs and Growth Tax Relief Reconciliation Act of 2003. Instead, an adjustment was required on the 2002, 2003, and 2004 returns for a certain percentage of the first-year depreciation claimed on the federal return for the applicable year. Any amount of additional first-year depreciation that an individual added to federal taxable income on the 2002, 2003, or 2004 State returns may be deducted in five equal installments beginning with the State tax return for 2005.

Example: An individual added back the following amounts of additional first-year depreciation on Line 36 of the State returns over the three previous tax years:

The individual may deduct $2,400 ($12,000 x .20) on the 2005 return and $2,400 on each return for the succeeding four tax years.

If a taxpayer disposes of an asset on which additional first-year depreciation was added back on the 2002, 2003, or 2004 State return, the taxpayer is entitled to claim the 20 percent deduction over the five year period even though the taxpayer no longer owns the asset. If a taxpaying entity that added back additional first-year depreciation on the State return merges with another entity, the new entity is not entitled to claim the 20 percent deduction.

Last modified on: 10/31/07 03:37:07 PM.