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Last Updated: 2/1/2017

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. But 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 taxpayers to claim 50 percent of an asset's basis as "bonus depreciation" in the year the asset is placed in service. Taxpayers 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, and 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.

Minnesota allows taxpayers to claim the full bonus amount, but it’s apportioned over a six-year period. In the year the asset is placed in service, taxpayers get 20 percent of the bonus depreciation. But they must add back the remaining 80 percent to taxable income, which is recovered when they subtract it from taxable income over the next five years, as shown in the example below.
 

Bonus Depreciation Example for a Nonresident Shareholder

This bonus depreciation example shows how a nonresident share holder applies the business allocation when calculating their Minnesota addition and subtraction.
 
Kelly, a nonresident of Minnesota, is a 60 percent shareholder of Capital T, an S corporation that does 50 percent of its business in Minnesota. In 2016, she received a Schedule K-1 from Capital T showing her share of bonus depreciation in the amount of $75,000, which she uses when filing her federal return.
 
When Kelly files a Minnesota return to report her share of income from Capital T, she’ll have to 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 increased to 75%, Line 19 ,Column B of Kelly’s  Schedule M1NR would be $9,000 ($12,000 X 75% = $9,000) .

If Capital T’s Minnesota business percentage for the year stayed at 50%, Line 19, Column B of Kelly’s Schedule M1NR would be $6,000 ($12,000 X 50% = $6,000).

If Capital T’s Minnesota business percentage for the year decreased to 25%, Line 19, Column B of Kelly’s Schedule M1NR would be $3,000 ($12,000 X 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, Income Additions and Subtractions.