Section 179 Addback Example 2 - Partnership Flow Through

Partnership’s Federal Form 4562 — Example 2

Partnership’s Minnesota Form 4562 — Example 2

The section 179 expensing amount of $80,000 is split between Sven and Lena based on their pro rata share of the partnership, as is the $25,000 for Minnesota purposes. Each partner’s pro rata share of the partnership’s section 179 expensing add back is reported on the partner’s Schedule KPI. 

Flow-through calculations: Sven’s pro rata share of federal section 179 expense deduction reported on his federal Schedule K-1 is $48,000 [$80,000 (partnership’s federal Form 4562, line 12 amount) x 60 percent (Sven’s partnership percentage)]. Lena’s pro rata share of the deduction reported on her federal Schedule K-1 is $32,000 ($80,000 x 40 percent). 

Since the partnership’s section 179 expense limit for Minnesota is $25,000, each partner must re-compute their section 179 expense for Minnesota purposes to arrive at their state add back. Sven’s Minnesota Schedule KPI expense amount is $15,000 [$25,000 (partnership’s Minnesota Form 4562, line 12 amount) x 60 percent (Sven’s partnership percentage)]. Lena’s pro rata share of the deduction reported on her Minnesota Schedule KPI is $10,000 ($25,000 x 40 percent). See the following example forms for these calculations.

The $80,000 of farm income is apportioned $48,000 (60 percent x $80,000) to Sven and $32,000 (40 percent x $80,000) to Lena.

In figuring the section 179 expensing addback, Sven’s deduction will be limited based on his share of farm income. In this situation, his federal section 179 expensing amount is the same as his pro rata share of farm income, $48,000. 

See the following federal and state Form 4562 and the Schedule M1M worksheet calculations.

Sven’s Federal Form 4562 - Example 2

Sven’s Minnesota Form 4562 - Example 2

Sven’s Minnesota Schedule M1M line 4 worksheet - Example 2

Sven’s Example 2 Answer:
Sven must add back $26,400 on his 2019 Minnesota return. This amount is 80 percent of the difference between the federal and Minnesota limitations (see Sven’s Schedule M1M, Worksheet for line 4). For each of the following five years beginning with tax year 2020, Sven may claim a subtraction of $5,280 ($26,400 x 20 percent) on his Minnesota return.

Lena’s portion of income from the partnership is $32,000 ($80,000 farm income x 40 percent). Her portion of the partnership’s section 179 expense, as reported on her federal Schedule K-1, is $32,000.

For Minnesota purposes, her share of the partnership’s Minnesota section 179 expense is limited to $10,000 [$25,000 (partnership’s Minnesota Form 4562, line 12 amount) x 40 percent (Lena’s partnership percentage)]. The $10,000 amount will be reported on the Schedule KPI she receives from the partnership. See the following federal and state Forms 4562 and Minnesota Schedule M1M worksheet calculations.

Lena’s Federal Form 4562 — Example 2

Lena’s Minnesota Form 4562 — Example 2

Lena’s Minnesota Schedule M1M, line 4 worksheet — Example 2

Lena’s Example 2 answer: Lena must add back $17,600 on her 2018 Minnesota return. This amount is 80 percent of the difference between the federal and Minnesota limitations (see Lena’s Schedule M1M worksheet for line 4). For each of the following five years beginning with tax year 2019, Lena may claim a subtraction of $3,520 ($17,600 x 20 percent) on her Minnesota return.