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Section 179 Expensing Addition
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Section 179 expensing lets businesses deduct the entire cost of certain equipment on their federal tax return in the year of purchase (instead of deducting depreciation over multiple years).
The Tax Cuts and Jobs Act (TCJA) modified section 179 expensing. The TCJA expanded the list of qualified property, increased the maximum expensing amount to $1 million, and increased the investment phaseout threshold.
For property placed in service in a taxable year beginning before January 1, 2020, Minnesota retained an 80% addition to income in the first year and a 20% subtraction for the five years following the addback. Minnesota limited the portion of expensing on a state return to the difference of the amount allowable under federal law and the amount allowable in 2003.
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Complete Schedule M1M, Income Additions and Subtractions and include it when you file Form M1, Individual Income Tax.
If the cost of the asset is more than $200,000, then the addback on your Minnesota return is 80% of the federal amount.
Minnesota Limits on Section 179 Expensing
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.
Example 1 — Sole Proprietor (for Minnesota residents and nonresidents)
Example 2 - Partnership Flow Through
The Minnesota addition is not required for federal expensing claimed on business property that qualifies for federal and state Section 179 expensing. This applies to property placed in service after December 31, 2019.
Minnesota subtractions from prior-year additions will continue until the five-year subtraction period ends.
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 I.R.C., as amended through December 16, 2016, but not after (qualifying property).
Minnesota Limits on Section 179 Expensing
Minnesota limits section 179 expensing to $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.
Example 1 — Sole Proprietor (for Minnesota residents and nonresidents)
Example 2 - Partnership Flow Through
For more information:
