Federal Bonus Depreciation Addition
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).
Bonus Depreciation Allowed by Minnesota
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
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See Minnesota Income Tax Treatment of Federal Bonus Depreciation on the state Legislature’s website
Nonresident Shareholder
See below for how you 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 2021, 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 2021. 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 2020, 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
Note: The 2021 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.
