State Tax Snapshot: Expiration of Bonus Depreciation, Enhanced Expensing


Key federal tax breaks set to expire in 2012 include bonus depreciation (I.R.C. §168(k)) and increased first-year asset expensing (I.R.C. §179). The end of these enhanced deductions at the federal level will affect the computation of taxable income in several states.

A minority of states conformed to bonus depreciation and nearly half adopted enhanced expensing.

Bonus depreciation under §168(k) began with the enactment of the Economic Stimulus Act in 2008. It allowed an additional first-year depreciation deduction equal to 50 percent of the adjusted basis in qualified property for the tax year in which the property was placed in service. Initially applicable to the 2008 tax year, the bonus depreciation deduction was extended to apply through 2011.

The states that conform to 50 percent bonus depreciation include: Alabama, Alaska, Colorado, Delaware, Kansas, Louisiana, Missouri, Montana, Nebraska, New Mexico, North Dakota, Utah, and West Virginia.

Enhanced expensing under §179 was also enacted in 2008 with the Economic Stimulus Act. It temporarily increased the maximum amount of capital investment that a taxpayer could expense rather than depreciate from $128,000 to $250,000 and raised the threshold at which the deduction phases out from $510,000 to $800,000. Originally applicable to the 2008 tax year, the enhanced expensing deduction and phase out amounts were modified and extended to apply through 2011.

The states that conform to enhanced expensing include: Alabama, Alaska, Colorado, Connecticut, Delaware, Georgia, Idaho, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Missouri, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, Virginia, and West Virginia.

By Steven Roll
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