Adjustment for Bonus Depreciation

2013

On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA); H.R. 8; P.L. 112-240. ATRA extends 50% bonus depreciation through 2013. The North Carolina General Assembly did not adopt the bonus depreciation provisions under Internal Revenue Code (“Code”) sections 168(k) or 168(n).

For taxable year 2013, individual taxpayers are required to add to federal adjusted gross income and corporate taxpayers are required to add to federal taxable income 85% of the amount allowed as a bonus depreciation deduction under section 168(k) or 168(n) of the Code for property placed in service during the tax year. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.

Note: An individual deduction is allowed for taxable years beginning on or after January 1, 2014, for the amount of bonus depreciation added to an individual’s federal adjusted gross income on the 2013 State income tax return. Similarly, a corporate deduction is allowed for taxable years beginning on or after January 1, 2014, for the amount of bonus depreciation added to the corporate federal taxable income on the 2013 State income tax return. The deduction may be taken in five equal installments over a five-year period beginning with the tax year subsequent to the year of the addition. (See Bonus Asset Basis for impact of the transfer of an asset with remaining bonus depreciation deductions.)

2010 through 2012

The Small Business Jobs Act of 2010 extended the 50% bonus depreciation through December 31, 2010 (retroactive to January 1, 2010). It also extends through 2011, additional first-year depreciation for property with a recovery period of 10 years or longer and for transportation property (tangible personal property used to transport people or property). Congress used the Tax Relief Act of 2010 to double and extend bonus depreciation from 50% to 100% for qualified property acquired and placed in service after September 8, 2010 and before January 1, 2012 (taxable years 2010 and 2011). The Tax Relief Act of 2010 also provides 50% bonus depreciation for qualified property placed in service after December 31, 2011 and before January 1, 2013 (taxable year 2012). Certain long-lived property and transportation property is eligible for 100% bonus depreciation if placed in service before January 1, 2013. North Carolina did not adopt the bonus depreciation provisions under IRC sections 168(k) or 168(n). Instead, taxpayers are required to add to federal taxable income an amount equal to 85% of the amount allowed as a bonus depreciation deduction under section 168(k) or 168(n) of the Code for property placed in service during tax years 2010 through 2012. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.

Note: A deduction is allowed for taxable years beginning on or after January 1, 2011, for the amount of bonus depreciation added on the 2010, 2011, and 2012 State income tax returns. The deduction may be taken in five equal installments over a five-year period beginning with the tax year subsequent to the year of the addition.

2008 and 2009

The federal American Recovery and Reinvestment Act of 2009 extended the 50% bonus depreciation available to certain property an additional year [see Economic Stimulus Act of 2008 below], through December 31, 2009. North Carolina law did not adopt the bonus depreciation provisions under IRC sections 168(k) or 168(n). Therefore, if you deducted the 50% bonus depreciation under IRC sections 168(k) or 168(n) on your 2009 federal return, you must add to federal taxable income 85% of the amount deducted. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.

Note: Any amount of the bonus depreciation added to federal taxable income on your 2009 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2010.

The federal Economic Stimulus Act of 2008 allows the 50 percent bonus depreciation (special accelerated depreciation) to certain property acquired and placed in service on or after January 1, 2008, and before January 1, 2009. North Carolina law did not adopt the bonus depreciation provision. Therefore, if you deducted 50 percent additional first-year depreciation on your 2008 federal return, you must add to federal taxable income 85 percent of the amount deducted. Also, an addition to federal taxable income is required on your 2008 State return for 85% of any additional first-year depreciation deducted on your 2007 fiscal year federal return for property acquired and placed in service on or after January 1, 2008. This adjustment does not result in a difference in basis of the affected assets for State and federal income tax purposes.

Note: Any amount of the additional first-year depreciation added to federal taxable income on your 2008 State return may be deducted in five equal installments over your first five taxable years beginning with the tax return for taxable year 2009.