Sam, a resident of Minnesota, is a 60% shareholder of SAM, Inc., an S corporation.
For tax year 2022, Sam received a federal Schedule K-1 from SAM, Inc. showing her share of bonus depreciation in the amount of $30,000. Sam did not have any other bonus depreciation.
When Sam prepares her federal income tax return, $10,000 of the federal bonus depreciation generated a loss that could not be deducted on her 2022 federal return.
Sam will complete and file Schedule M1MB, Business Income Addition and Subtraction, with her 2022 Minnesota income tax return. Since Sam is not allowed to use $10,000 of the bonus depreciation in 2022, she is only required to addback 80% of the amount that was deducted federally.
Because $10,000 of her share of the reported federal bonus depreciation generated a loss that could not be deducted on her 2022 return, Sam will include $20,000 in step 2 rather than her full $30,000 share of bonus depreciation from SAM, Inc.
Because Sam did not have any other bonus depreciation, she will enter $16,000 on line 1 of her Schedule M1MB.
Sam will complete the worksheet for line 1 of Schedule M1MB located in the instructions as follows:
Schedule M1MB, Business Income Additions and Subtractions
Worksheet for Line 1, Federal bonus depreciation addition
|
|
---|
1 Add lines 14 and 25 of your federal Form 4562 |
$0 |
2 Total bonus depreciation amounts passed to you as a partner of shareholder (line 4 of Schedule KPI or KS) |
$20,000 |
3 Add steps 1 and 2 |
$20,000 |
4 Multiply step 3 by 80% (.80) |
$16,000 |
5 Total of 80% federal bonus depreciation addition passed through to you as a beneficiary (from line 5 of Schedule KF) |
$0 |
6 Add steps 4 and 5. Enter the result her and on line 1 of Schedule M1MB |
$16,000 |
For tax year 2023, Sam received a federal Schedule K-1 from SAM, Inc. showing her share of bonus depreciation in the amount of $50,000. The entire $50,000 may be deducted on her 2023 federal return. Additionally, Sam determined the $10,000 suspended bonus depreciation from 2022 may be deducted on her 2023 federal return.
Sam will complete and file Schedule M1MB, Business Income Addition and Subtraction, with her 2023 Minnesota income tax return. Since Sam deducts the $50,000 bonus depreciation from the 2023 tax year and the $10,000 suspended bonus depreciation from the 2022 tax year on her 2023 federal return, she is required to addback 80% of $60,000 (the amount that was deducted federally).
Schedule M1MB, Business Income Additions and Subtractions
Worksheet for Line 1, Federal bonus depreciation addition
|
---|
1 Add lines 14 and 25 of your federal Form 4562 |
$0 |
2 Total bonus depreciation amounts passed to you as a partner of shareholder (line 4 of Schedule KPI or KS) |
$60,000 |
3 Add steps 1 and 2 |
$60,000 |
4 Multiply step 3 by 80% (.80) |
$48,000 |
5 Total of 80% federal bonus depreciation addition passed through to you as a beneficiary (from line 5 of Schedule KF) |
$0 |
6 Add steps 4 and 5. Enter the result her and on line 1 of Schedule M1MB |
$48,000 |
Note: Sam is allowed a bonus depreciation subtraction on her 2023 Minnesota income tax return in the amount of $4,000 (20% of $16,000).