Section 179 Expensing Addition

Tax Year 2020 and After

The Minnesota addition is not required for federal expensing claimed on business property that qualifies for federal and state Section 179 expensing for property placed in service in a taxable year beginning after December 31, 2019. We have updated 2020 state tax forms and instructions.

Minnesota subtractions from prior-year additions will continue until the five-year subtraction period ends.

A Minnesota Section 179 addition is required on the 2020 Minnesota income tax return in these circumstances:

• Shareholders and partners of a fiscal-year flow-through business

  • The Minnesota Section 179 addition applies to property placed in service during a flow-through business’s 2019 fiscal year. 
  • While a flow-through business’s 2019 fiscal year began before January 1, 2020, its partners and shareholders filing on a calendar year must report that income on their 2020 income tax return.
  • Partners and shareholders must report the Minnesota Section 179 addition on their 2020 Minnesota income tax return that was generated by and flows through from a fiscal-year flow-through business’s 2019 Minnesota income tax return.

• Taxpayers with a carryover of federal Section 179 expensing limited in a prior year

  • Taxpayers whose federal Section 179 expense deduction is limited in the year the property is placed in service can carry the expense deduction to future years. 

If taxpayers elected federal Section 179 expensing for property placed in service in a tax year that began prior to January 1, 2020, and they report a federal carryover amount on income tax returns for tax years beginning after December 31, 2019, they must report the addition relating to this property on their 2020, and potentially subsequent years.

Tax Years 2017, 2018, and 2019

If you claimed federal section 179 expensing that exceeds Minnesota’s limits, you must make this addition on your Minnesota return for that year. You must add back 80% of the difference between the dollar limit allowed under the Internal Revenue Code (I.R.C.) and the dollar limit allowed under the I.R.C. as amended through December 31, 2003.

The state Section 179 addition is not required for property received as part of a transaction that qualified as a like-kind exchange under Section 1031 of the IRC, as amended through December 16, 2016, but not thereafter (qualifying property).

For tax years prior to 2020, Minnesota limited section 179 expensing at $25,000 in the year of purchase, with an investment limit of $200,000. The limits apply first at the entity level and then flow through to shareholders or partners. The limits on entities also apply at the individual level. For details, see Examples 1 and 2 below.