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Last Updated: 1/31/2017

Section 179 Expensing Addition

Section 179 expensing lets businesses deduct the entire cost of certain equipment on their federal tax return in the year of purchase, instead of taking deductions for depreciation over a number of years. But for 2006 and later, Minnesota limits this expensing on your state return to the amount that was allowed in 2003 (when the federal limits were first increased).

If you claim federal section 179 expensing that exceeds Minnesota’s limits, you must add back 80 percent of the difference on your state return for that year (Schedule M1M, Income Additions and Subtractions). You’re allowed to recover that amount over the next five years by taking an income subtraction – 20 percent each year. (See Section 179 Expensing Subtraction.)

When calculating the addition:

  • Minnesota caps section 179 expensing at $25,000 in the year of purchase, with an investment limit of $200,000.
  • The federal expensing limit is $500,000, with an investment limit of $2,010,000.
  • If the cost of the asset is more than $200,000, then the addback on your Minnesota return will be 80 percent of the federal amount.
  • The limits apply first at the entity level and flow through to shareholders or partners. The limits also apply at the individual level. (See examples 1-2, below.)

Sale of business or disposition of asset

There is no separate basis adjustment for Minnesota If you sell or dispose of the asset – or sell your business – before the five-year subtraction period ends. You can’t take the remainder of the subtraction in the year of sale. Instead, you must continue with the five-year schedule.

For more information:

View “Section 179 Expensing” on the state Legislature’s website.

View the statute, M.S. 290.0131, subd. 10.

Examples

Example 1 — Sole Proprietor (for Minnesota residents and nonresidents)

Example 2 — Partnership flow through to partners who are full-year Minnesota residents