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Last Updated: 10/25/2018

Federal Bonus Depreciation Addition

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Minnesota adopted the 50 percent/100 percent federal bonus depreciation and increased section 179 expensing as of March 21, 2011. However, these provisions remain subject to an addback of 80 percent in the first year and five-year recovery.

The federal Economic Stimulus Act of 2008 allows you to claim 50 percent of an asset's basis as "bonus depreciation" in the year the asset is placed in service. You may then claim the regular depreciation amount on the remaining 50 percent of the asset's basis. This provision applies to:

  • Assets placed in service after Dec. 31, 2007, and before Jan. 1, 2015, for most property.
  • Assets placed in service before Jan. 1, 2016, for certain property with longer production periods.

This is a continuation of the federal Bonus Depreciation Acts of 2002 and 2003, following the same procedures as the earlier legislation.

Does Minnesota allow me to claim the full bonus amount?

Yes, but it is apportioned over a six-year period. In the year the asset is placed in service, you get 20 percent of the bonus depreciation. However, you must add back the remaining 80 percent to taxable income, which is recovered when you subtract it from taxable income over the next five years, as shown in the example below.

 
Note:  If you claimed federal bonus depreciation for assets placed in service after September 27, 2017, you may need to adjust your Minnesota return.  See 2017 Schedule M1NC, Federal Adjustments

What if I am a nonresident shareholder?

See the example below for how you apply the business allocation when calculating your Minnesota addition and subtraction.
 
Example: Kelly, a nonresident of Minnesota, is a 60 percent shareholder of Capital T, an S corporation that had 50% of its sales in Minnesota. In 2016, she received federal Schedule K-1 from Capital T showing her share of bonus depreciation in the amount of $75,000. Kelly uses this amount when filing her federal return.
 

When Kelly files a Minnesota return to report her share of income from Capital T, she must add back 80 percent of the bonus depreciation allowed on the federal return. To determine her tax liability for 2016, she files the Minnesota return using Schedule M1NR, Nonresidents/Part-Year Residents.

Kelly calculates her bonus depreciation addition and subtraction as follows:
 
2016 bonus depreciation addition on Schedule M1NR

Line 10, Column A: $75,000 x .80 = $60,000

Line 10, Column B: $60,000 x .50 (business ratio) = $30,000

Note: The 2016 bonus depreciation addition reported on line 10, column A ($60,000) is the same amount reported on the Federal Bonus Depreciation addition line of Schedule M1M, Income Additions and Subtractions.

2017 – 2018 bonus depreciation subtraction on Schedule M1NR

Line 19, Column A: $60,000 x .20 = $12,000 

Line 19, Column B:
Would be determined on a yearly basis by Capital T’s Minnesota business percentage for the specific tax year.

​ If Capital T’s Minnesota business percentage 
 for the year
​ Then Kelly’s amount on Schedule M1NR, line 19, 
 column B would be
​ Increased to 75 percent ​ $9,000 ($12,000 X 0.75 = $9,000)
​ Stayed at 50 percent ​ $6,000 ($12,000 X 0.50 = $6,000)
​ Decreased to 25 percent ​ $3,000 ($12,000 X 0.25 = $3,000)
Note: The 80 percent addback amount reported on line 19, column A ($12,000 per year) is the same amount reported on the Federal Bonus Depreciation subtraction line of Schedule M1M.