Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 53 - Determination of Net Income › Rule 701-53.23 - Section 179 Expensing

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
In general.
Iowa taxpayers that elect to expense certain
				depreciable business assets in the year the assets were placed in service under
				section 179 of the Internal Revenue Code must also expense those same assets
				for Iowa income tax purposes in that year. However, for certain years, the Iowa
				limitations on this deduction are different from the federal limitations for
				the same year. This means that for some tax years, adjustments are required to
				determine the correct Iowa section 179 expensing deduction, as described in
				this rule.
(2)
Claiming the
				deduction.
a.
Timing and
				requirement to follow federal election. A
taxpayer that takes a
				federal section 179 deduction must also take the deduction for the same asset
				in the same year for Iowa purposes, except as expressly provided by Iowa law or
				this rule. A taxpayer that takes a federal section 179 deduction is not
				permitted to opt out of taking the same deduction for Iowa purposes. A taxpayer
				that does not take a federal section 179 deduction on a specific qualifying
				asset is not permitted to take a section 179 deduction for Iowa purposes on
				that asset.
b.
Qualifying
				for the deduction.
Whether a specific business asset qualifies for a
				section 179 deduction is determined by the Internal Revenue Code (Title 26,
				U.S. Code) and applicable federal regulations for both federal and Iowa
				purposes.
c.
Amount of the
				Iowa deduction.
Generally, the Iowa deduction must equal the amount of
				the federal deduction taken for the same asset in the same year, subject to
				special Iowa limitations. The following chart provides a comparison of the Iowa
				and federal section 179 dollar limitations and reduction limitations. See rule
				701-4065. (422) for the section
				179 rules applicable to individuals and other noncorporate entities, and see
				rule 701-5924. (422) for the section
				179 rules applicable to financial institutions subject to the franchise tax.
Section 179 Deduction Allowances Under Federal and
							 Iowa Law
Federal
Iowa
Tax Year
Dollar Limitation
Reduction Limitation
Dollar Limitation
Reduction Limitation
2003
$ 100,000
$ 400,000
$ 100,000
$ 400,000
2004
102,000
410,000
102,000
410,000
2005
105,000
420,000
105,000
420,000
2006
108,000
430,000
108,000
430,000
2007
125,000
500,000
125,000
500,000
2008
250,000
800,000
250,000
800,000
2009
250,000
800,000
133,000
530,000
2010
500,000
2,000,000
500,000
2,000,000
2011
500,000
2,000,000
500,000
2,000,000
2012
500,000
2,000,000
500,000
2,000,000
2013
500,000
2,000,000
500,000
2,000,000
2014
500,000
2,000,000
500,000
2,000,000
2015
500,000
2,000,000
500,000
2,000,000
2016
500,000
2,010,000
25,000
200,000
2017
510,000
2,030,000
25,000
200,000
2018
1,000,000
2,500,000
70,000
280,000
2019
1,020,000
2,550,000
100,000
400,000
2020 and later
Iowa limitations are the same as federal
d.
Reduction.
Both the federal and the Iowa deductions for
				section 179 assets are reduced (phased out dollar for dollar) for taxpayers
				whose total section 179 assets placed in service during a given year cost more
				than the amount specified (reduction limitation) for that year. Like the
				deduction limitation, the Iowa and federal reduction limitations are different
				for certain years. See paragraph 53.23(2)
"c"
for applicable
				limitations.
Example: Taxpayer, a corporation, purchases $400,000 worth of
				  qualifying section 179 assets and places all of them in service in 2018.
				  Taxpayer claims a section 179 deduction of $400,000 for the full cost of the
				  assets on the 2018 federal return. For corporations, the Iowa section 179
				  deduction for 2018 is phased out dollar for dollar by the amount of section 179
				  assets placed in service in excess of $280,000. This means that, for 2018, the
				  Iowa deduction is fully phased out if the taxpayer placed in service section
				  179 assets that cost, in total, more than $350,000. Since the cost of the
				  qualifying assets in this example exceeds the Iowa section 179 phase-out limit,
				  the taxpayer cannot claim any section 179 deduction on the Iowa return.
				  However, the taxpayer may depreciate the entire cost of the assets for Iowa
				  purposes.
e.
Amounts in excess of the Iowa limits.
(1) Recovering the excess. Due to the
				differences between the Iowa and federal limitations for certain years,
				taxpayers may have a federal section 179 deduction that exceeds the amount
				allowed for Iowa purposes. This excess amount is handled in different ways
				depending on the source of the deduction.
1.
				Assets placed in service by the taxpayer or entity reporting the deduction. The
				cost of any section 179 assets placed in service by the taxpayer in excess of
				the Iowa limitation for a given year may be recovered through regular
				depreciation under Section 168 of the Internal Revenue Code, without regard to
				bonus depreciation under Section 168(k). The Iowa section 179 and depreciation
				deductions and any basis adjustments resulting from the difference in timing of
				the recovery between Iowa and federal law are calculated and tracked on forms
				made available on the department's website.
Example: Taxpayer, a corporation, purchases a $100,000 piece
				  of equipment and places it in service in 2018. Taxpayer claims a section 179
				  deduction of $100,000 for the full cost of the equipment on the 2018 federal
				  return. Taxpayer is also required to claim a section 179 deduction of $70,000
				  on the 2018 Iowa return (the full amount of the federal deduction up to the
				  Iowa limit for corporations for 2018). The taxpayer can depreciate the
				  remaining $30,000 cost of the equipment for Iowa purposes.
2. Special election for assets placed in
				service by a pass-through entity when the section 179 deduction is claimed by
				an owner of that pass-through. See subrule 53.23(3) for information on a
				special election available to certain owners of pass-through entities related
				to any section 179 deductions passed through from a partnership or other entity
				that, in the aggregate, exceed the Iowa limitations.
(2) Special information for pass-throughs. In
				the case of pass-through entities, section 179 limitations apply at both the
				entity level and the owner level. Pass-through entities that are required to
				file an Iowa return and that actually place section 179 assets in service
				should follow 53.23(2)
"e
"(1)"1" to account for any assets for
				which the total federal section 179 deductions for a given year exceeded the
				Iowa limitation. Owners of pass-throughs receiving section 179 deductions from
				one or more pass-throughs that, in the aggregate, exceed the Iowa limitations
				should follow 53.23(2)
"e
"(1)"2."
EXAMPLE: A, Inc. (a corporation doing business exclusively in
				  Iowa) owns 50 percent interests in each of three partnerships: C, D, and E.
				  Partnership C, which also does business exclusively in Iowa, places $200,000
				  worth of section 179 assets in service during tax year 2019 and claims a
				  federal section 179 deduction for the full cost of the assets. Because C is
				  required to file an Iowa partnership return, C is subject to the Iowa section
				  179 limitations for 2019 and must adjust its Iowa section 179 deduction as
				  provided in 701-numbered paragraph 40.65(2)
"e
"(1)"1." C
				  passes through 50 percent of its section 179 deduction ($100,000 for federal
				  purposes, $50,000 for Iowa purposes) to A, Inc. A, Inc. also receives $50,000
				  each in section 179 deductions from D and E, for a total of $150,000 in section
				  179 deductions (for Iowa purposes) in 2019. A, Inc. is subject to the $100,000
				  Iowa section 179 deduction limitation for 2019, but because A, Inc. received
				  total section 179 deductions from one or more pass-throughs in excess of the
				  2019 Iowa limitation, A, Inc. is eligible for the special election referenced
				  in 53.23(2)
"e
"(1)"2."
f
Income limitation.
The
				Iowa section 179 deduction for any given year is limited to the taxpayer's
				income from active conduct in a trade or business in the same manner that the
				section 179 deduction is limited for federal purposes. If an allowable Iowa
				section 179 deduction exceeds the taxpayer's business income for a given year,
				any excess allowable Iowa section 179 deduction may be carried forward as
				described in paragraph 53.23(2)
"g. "
g.
Carryforward.
This
				paragraph applies only to amounts that do not exceed the Iowa section 179
				deduction limitations for a given year but do exceed the taxpayer's business
				income for that year. As with the federal deduction, allowable Iowa section 179
				deductions claimed in a given year that exceed a taxpayer's business income may
				be carried forward and claimed in future years. This carryforward, if any, is
				calculated using only amounts up to the Iowa limit. Any federal section 179
				deduction the taxpayer claimed in excess of the Iowa limit is not an Iowa
				section 179 deduction and therefore is not eligible for the carryforward
				described in this paragraph. Such amounts must instead be recovered as
				described in paragraph 53.23(2)
"e, "
or in subrule 53.23(3)
				for taxpayers receiving the deduction from one or more pass-through entities
				and making the special election as described in that subrule.
h.
Difference in basis.
Iowa adjustments for differences between the Iowa and federal section 179
				deduction limitations may cause the taxpayer to have a different basis in the
				same asset for Iowa and federal purposes. Taxpayers are required to use forms
				made available on the department's website to calculate and track these
				differences.