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Federal Bonus Depreciation Addition
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You must add back 80% of Minnesota allowable bonus depreciation when calculating Minnesota taxable income. Then, beginning with the year following the addition, you will recover this addition by taking a subtraction in equal parts over five years (20% per year).
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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:
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 2023, 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 2023. 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 2023, 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
