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Discussion:Bonus Depreciation add back NC

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Discussion Forum Index --> Advanced Tax Questions --> Bonus Depreciation add back NC


Discussion Forum Index --> Tax Questions --> Bonus Depreciation add back NC

Bell (talk|edits) said:

27 March 2014
I am seeing K-1's with an add back for Bonus Depreciation for non-comforming states. If there is a large loss on Line 1 of the K-1......do I make this adjustment on the state return in 2013.......or do I have a different loss for the state that I must keep up with.

I have another K-1 that was sold in 2013. It also has this bonus depreciation adjustment. Not sure how to handle it on the state. Thanks, in advance!

Ckenefick (talk|edits) said:

27 March 2014
do I make this adjustment on the state return in 2013.......or do I have a different loss for the state that I must keep up with.

Technically, you would have a separate loss (and outside basis) to keep track of for NC state purposes. You'd basically have one Ordinary Loss number for fed and a different one for the state.

Pretend fed bonus was 100% and was $100k and fed loss is $100k. On NC, loss would only be $15k owing to the 85% add-back.

If initial outside Fed/NC basis was $100k, ending outside fed basis is $0 and ending outside NC basis is $85k. The difference is the amount of the adjustment...which get reversed over the next 5-years. Do note though, that in my little example, if it's a passive activity, the fed passive loss c/f would be $100k and the NC passive loss c/f would $15k, the difference, again, is the amount of the adjustment.

The law was designed to avoid having a different Fed/State basis in the depreciable asset...but, when we start involving pass-thru entities, we end up with a different Fed/State basis (and loss carryover amounts) at the partner/shareholder level...so, the issue just gets moved up the chain.

But I'm with you: I often just run the current year NC adjustment through the D-400 as an add-back adjustment and call it a day.

Kevinh5 (talk|edits) said:

27 March 2014
I do as Chris.

Bell (talk|edits) said:

27 March 2014
How do you handle the Bonus Depreciation in the year of sale? The K-1 is giving an add back for NC, but the partnership was sold in 2013. Seems like you would not add that back as all depreciation is considered in the sale????? Not sure what to do with that one.

Ckenefick (talk|edits) said:

27 March 2014
What do you mean - do you mean the partnership interest was sold?

Bell (talk|edits) said:

28 March 2014
Yes. My client sold all of his interest in the partnership.

Ckenefick (talk|edits) said:

28 March 2014
Then include it as an NC adjustment and add it to the state basis in his partnership interest. The net effect will be $0 unless the sale was at a loss and is held up as a capital loss.

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