Iowa Administrative Code › Agency 701 - Revenue Department › Title VI - Corporation Income Tax › Chapter 502 - Determination of Net Income › Rule 701-502.22 - Additional First-year Depreciation Allowance

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Assets acquired after September
				10, 2001, but before May 6, 2003.
For tax periods ending after
				September 10, 2001, but beginning before May 6, 2003, the additional first-year
				depreciation allowance ("bonus depreciation") of 30 percent authorized in
				Section 168(k) of the Internal Revenue Code, as enacted by Public Law No.
				107-147, Section 101, does not apply for Iowa corporation income tax. Taxpayers
				who claim the bonus depreciation on their federal income tax return must add
				the total amount of depreciation claimed on assets acquired after September 10,
				2001, but before May 6, 2003, and subtract the amount of depreciation taken on
				such property using the modified accelerated cost recovery system (MACRS)
				depreciation method applicable under Section 168 of the Internal Revenue Code
				without regard to Section 168(k).
If any such property was sold or disposed of during the tax
				  year, the applicable depreciation catch-up adjustment must be made to adjust
				  the basis of the property for Iowa tax purposes. The gain or loss reported on
				  the sale or disposition of these assets for federal tax purposes must be
				  adjusted for Iowa tax purposes to account for the adjusted basis of
				  assets.
The adjustment for both depreciation and the gain or loss on
				  the sale of qualifying assets acquired after September 10, 2001, but before May
				  6, 2003, can be calculated on Form IA 4562A.
The following nonexclusive examples illustrate how this
				  subrule applies:
EXAMPLE 1: Taxpayer acquired a $100,000 qualifying asset on
				  January 1, 2002, which has a five-year life for depreciation purposes. Using
				  the bonus depreciation provision in Section 168(k) of the Internal Revenue
				  Code, taxpayer was entitled to a $44,000 depreciation deduction on the federal
				  return for 2002. For Iowa purposes, taxpayer must use the MACRS depreciation
				  method which results in a $20,000 depreciation deduction on the Iowa return for
				  2002. Therefore, a $24,000 ($44,000 " $20,000) increase to net income relating
				  to this depreciation adjustment must be made on the Iowa return for
				  2002.
EXAMPLE 2: Taxpayer acquired a $1,000,000 qualifying asset on
				  January 1, 2002, which has a ten-year life for depreciation purposes. This
				  asset was sold on December 31, 2005, for $500,000. Using the bonus depreciation
				  provision, taxpayer claimed $677,440 of depreciation deductions on the federal
				  returns for 2002-2005. This results in a basis for this asset of $322,560
				  ($1,000,000 " $677,440), and a gain of $177,440 ($500,000 " $322,560) on the
				  federal return for 2005 on the sale of the asset.
Using the MACRS depreciation method, taxpayer claimed
				  $539,200 of depreciation deductions on the Iowa returns for 2002-2005. This
				  results in a basis for this asset of $460,800 ($1,000,000 " $539,200), and a
				  gain of $39,200 ($500,000 " $460,800) on the Iowa return for 2005 on the sale
				  of the asset. Therefore, a decrease to net income of $138,240 ($177,440 "
				  $39,200) relating to this gain adjustment must be made on the Iowa return for
				  2005.
(2)
Assets
				acquired after May 5, 2003, but before January 1, 2005.
For tax
				periods beginning after May 5, 2003, but beginning before January 1, 2005, the
				bonus depreciation of 50 percent authorized in Section 168(k) of the Internal
				Revenue Code, as amended by Public Law No. 108-27, Section 201, may be taken
				for Iowa corporation income tax. If the taxpayer elects to take the 50 percent
				bonus depreciation, the depreciation deduction allowed on the Iowa corporation
				income tax return is the same as the depreciation deduction allowed on the
				federal income tax return for assets acquired after May 5, 2003, but before
				January 1, 2005.
a. If the taxpayer elects to
				take the 50 percent bonus depreciation and had filed an Iowa return prior to
				February 24, 2005, which reflected the disallowance of 50 percent bonus
				depreciation, the taxpayer may choose between two options to reflect this
				change. Taxpayer may either file an amended return for the applicable tax year
				to reflect the 50 percent bonus depreciation provision, or taxpayer may reflect
				the change for 50 percent bonus depreciation on the next Iowa return filed
				subsequent to February 23, 2005. Taxpayer must choose only one of these two
				options. Regardless of the option chosen, taxpayer must complete and attach a
				revised Form IA 4562A to either the amended return or the return filed
				subsequent to February 23, 2005.
See 701-subrule 40.60(2), paragraph
"a,"
for
				  examples illustrating how this subrule is applied.
b. If the taxpayer elects not to take the 50
				percent bonus depreciation, taxpayer must add the total amount of depreciation
				claimed on assets acquired after May 5, 2003, but before January 1, 2005, and
				subtract the amount of depreciation taken on such property using the modified
				accelerated cost recovery system (MACRS) depreciation method applicable under
				Section 168 of the Internal Revenue Code without regard to Section 168(k). If
				any such property was sold or disposed of during the tax year, the applicable
				depreciation catch-up adjustment must be made to adjust the basis of the
				property for Iowa tax purposes. The gain or loss reported on the sale or
				disposition of these assets for federal tax purposes must be adjusted for Iowa
				tax purposes to account for the adjusted basis of assets. The adjustment for
				both depreciation and the gain or loss on the sale of qualifying assets
				acquired after May 5, 2003, but before January 1, 2005, can be calculated on
				Form IA 4562A.