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Discussion:Different 179 Limits-How to Report for NC

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Discussion Forum Index --> Advanced Tax Questions --> Different 179 Limits-How to Report for NC


Discussion Forum Index --> Tax Questions --> Different 179 Limits-How to Report for NC

Seaside CPA (talk|edits) said:

27 February 2014
I can't believe I have never run into this before! S-Corp client. For example, took $75,000 in Federal Section 179. NC is limited to $25,000 for 2013. Is the $50,000 difference shown on the NC corporate return as an addition to income on Schedule I? (I can't seem to be able to put it there) Or is this difference just handled on the individual returns? My software is only printing the amounts on a schedule to the K-1. Of course the NC instructions are really of no use in this situation! Has anyone run into this before?

DebP (talk|edits) said:

27 February 2014
I am in CA, and we have the same limitation. The depreciation differences run through Page 1 of state adjustments, and the Section 179 differences run through on the K-1.

Seaside CPA (talk|edits) said:

28 February 2014
When you say the 179 differences run through on the K-1, what exactly do you mean? My NC K-1 shows nothing different than the Fed k-1,except a schedule attached which shows the NC 179 amount and the federal 179 amount. Is this how your CA K-1 would appear?

DebP (talk|edits) said:

28 February 2014
We have three columns =- federal/adjustments/CA. I think you just need to input the different items in your tax program and show it as a fed/NC difference like you would with ordinary income. It's very common over here - I am just it's just a matter of putting it in the program correctly.

Ckenefick (talk|edits) said:

28 February 2014
NC is limited to $25,000 for 2013.

Word on the street is that the the State Legislature "intended" for the limit to be $200k, but screwed up the legislation, and will correct it during their next session. So, if you go with the $25k for now, at the state level, you might be amending returns later on. Advice might be to extend or maybe make no NC adjustment and assume that corrective legislation will be passed.

And, if you go with making an adjustment now, NC starts with Fed AGI, as you know. So, if the fed 179 is taken on the 1040 in full, there's got to be an adjustment at the state level, as Deb says.

Seaside CPA (talk|edits) said:

28 February 2014
Chris, I'm pretty sure the limit for NC 179 is $25,000, but that there was an error in the drafting of the investment limitation (assets put into service). The investment limitation is currently $125,000, but was meant to be $200,000. I do know there has to be an adjustment at the state level-just don't know if it is shown on the NC corporate return, Schedule I, or on the Schedule to the K-1.

Ckenefick (talk|edits) said:

28 February 2014
That rings a bell. I think you're right.

Bushmaster (talk|edits) said:

4 March 2014
Seaside is correct. Sec 179 is limited to $25,000. Investment is currently limited to $125,000 but will be fixed to read $200,000. Seaside, the NC K-1 should show an addback for $50,000 Sec 179. The god news is you can take 20% of the $50,000 addback over the next 5 years if all other items are correct. But it should show on the NC K-1 on line 2b. When you deduct the 20% next year, that amount should show up on line 3b. You may want to check your software. Mine shipped with NC allowing $500,000 and I had to manually make that adjustment prior to the updates coming out.

Ckenefick (talk|edits) said:

4 March 2014
Seaside is definitely right. I think this is part of NC moving to the flat tax. Many credits and deductions, that we have come to know and love in NC, are going by the wayside.

Seaside CPA (talk|edits) said:

4 March 2014
The NC Individual income tax return directions for line 36-adjustment for section 179 expense deduction-read as follows: If you deducted section 179 expense on your federal return, an addition is required equal to 85% of the difference between the amount claimed on your federal return for section 179 expense and the $25,000 dollar limitation and $125,000 investment limitation adopted by the NC General Assembly.

85%? You don't add back the total difference?

Ckenefick (talk|edits) said:

4 March 2014
No, you add-back 85% of the difference. In essence, you do get a little something extra up front.

The 85% and the add-back seem stupid, but there is some logic to it. That being, you don't adjust the basis of the asset for state purposes. It has the same Fed/State basis and the difference is accounted for by an add-back in Year1 and then we amortize that add-back off over 5-years (20% per year). So, if you dispose of the property in Year3...it doesn't matter...no Fed/NC basis difference...and, we just keep on going with deducting off the add-back at a rate of 20% per year.

Seaside CPA (talk|edits) said:

4 March 2014
Yes, I understand getting the NC write off (deduction) over 5 years. But in the example above, you add back to NC 85% of the $50,000 difference in 2013? So instead of adding back the full $50,000, you add back $42,500? Which means you are really getting the benefit of $32,500 Section 179 for NC?

Bushmaster (talk|edits) said:

4 March 2014
Yes. I glossed over the addback as I thought the question is whether the addback should appear on the NC K-1. I had one this week (partnership) and it appears on the NC K-1.

Ckenefick (talk|edits) said:

4 March 2014
You said it this way:

Which means you are really getting the benefit of $32,500 Section 179 for NC?

I said it this way:

you do get a little something extra up front.

Seaside CPA (talk|edits) said:

5 March 2014
Well that sure is a funny "limit" of $25,000 Section 179 on NC returns! Thanks both of you for confirming I am not going crazy! Bushmaster, my original question was regarding how to show it on the corporate return. I ended up calling NCDR and they told me that it doesn't show up on the NC return at all. So I went with the attachment to the K-1 showing the Fed and NC 179 amounts, which is how my software was handling it. I tried putting it on line 2b of the K-1, but if I followed the line directions as to where everything flowed, it wouldn't end up on the individual return on the correct line. I'm finished with the corporate returns, but am now working on the individual returns, which was throwing me off again with the 85% add-back. Think I've got it straight now! Thanks again both of you!

Ckenefick (talk|edits) said:

5 March 2014
You got crappy advice from the NCDOR. But it doesn't matter much. It is indeed an "other addition." Bonus works the same exact way in NC...and it's been this way since, I think, bonus first came out whenever that was...

Seaside CPA (talk|edits) said:

5 March 2014
Well, if I put it on Line 2b on NC K-1, it flows to line 38-Other Fed AGI additions- on individual return. It looks like to me it should go on line 36-Adjustment for Section 179. That's why I just did the attachment to the K-1, then I can put it on line 36. Either way, it will be the same bottom line. I had bonus depreciation on this one too. It shows on another line, and I had no problem with it.

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