Federal Bonus Depreciation Addition

You get 20% of the bonus depreciation allowed on your Minnesota return in the year the asset is placed in service. You must add back the remaining 80% to your Minnesota taxable income. You recover this amount when you subtract it from taxable income over the next five years.

For details:

• See the Nonresident Shareholder example
• See Minnesota Income Tax Treatment of Federal Bonus Depreciation on the state Legislature’s website

This example shows how to apply the business allocation when calculating your Minnesota addition and subtraction.

Nonresident Shareholder Example

Kelly, a nonresident of Minnesota, is a 60% shareholder of Capital T, an S corporation that had 50% of its sales in Minnesota. For tax year 2024, 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.

The $75,000 represents 100% of her share of the basis in the qualifying property placed in service in 2024. She will see her Federal Adjusted Gross Income reduced by $75,000, which reduces the income listed on line 1 of the Form M1. When she completes her Schedule M1MB, Business Income Additions and Subtractions, she will need to add back $60,000 (80% of $75,000) to her Minnesota taxable income.

To determine her tax liability for 2024, she files the Minnesota return using Schedule M1NR, Nonresidents/Part-Year Residents.

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

• Line 10, Column A: $60,000  (full addback reported on Schedule M1M)
• Line 10, Column B: $60,000 x .50 (business ratio) = $30,000