PI & CFT 2002-02 - Ohio Bonus Depreciation Adjustments
and the Internal Revenue Code's Passive Activity Loss, Basis
Limitation and At-Risk Rules - November 7, 2002
An Ohio taxpayer claiming IRC section 168(k) bonus
depreciation for federal income tax purposes for taxable
years ending before June 5, 2002 must either (i) compute Ohio
taxable income for that taxable year as if IRC section 168(k)
had not been enacted or (ii) except as set forth below, add
back five-sixths of the bonus depreciation claimed for that
taxable year and then in each of the five subsequent taxable
years deduct one-fifth of the amount previously added back.
For taxable years ending after June 4, 2002 taxpayers cannot
compute Ohio taxable income as if IRC section 168(k) had not
been enacted; rather, taxpayers must generally add back
five-sixths of the bonus depreciation claimed for the taxable
year and then in each of the five subsequent taxable years
deduct one-fifth of the amount previously added back.
Applicable to assets which the taxpayer acquired during
taxable years ending in 2001, 2002, 2003, and 2004, these
adjustments also apply to depreciable assets acquired by the
taxpayer's disregarded entities and to depreciable assets
acquired by pass-through entities in which the taxpayer
directly or indirectly has an equity interest of at least
five percent.
If the taxpayer is a five percent or
more equity investor in a pass-through entity which has
claimed the IRC section 168(k) bonus depreciation and if,
because of the Internal Revenue Code's passive activity loss
limitation rules, basis limitation rules, or at-risk
limitation rules, the taxpayer is unable to fully deduct a
loss passing through from the pass-through entity to the
taxpayer, then to the extent that the taxpayer does not
currently recognize the loss the taxpayer can defer making
the "5/6 add-back" until the taxable year or years for which
the taxpayer deducts the pass-through entity loss and
receives a federal tax benefit from the bonus depreciation
amount claimed by the pass-through entity. Of course, the
taxpayer cannot begin claiming the related
five-subsequent-years deduction until the first taxable year
immediately following the taxable year for which the taxpayer
makes the 5/6 add-back.
If you have questions, please
e-mail us.
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Applicable law: Ohio Revised Code sections 5733.04(I)(17),
5733.04(I)(18), 5733.40(A)(5), 5747.01(A)(20),
5747.01(A)(21), and 5747.01(S)(14).
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1 For detailed information regarding this
adjustment, see the Department’s July 31, 2002 information
release entitled, "Recently-enacted Ohio Legislation Affects
Depreciation Deductions for Taxable Years Ending in 2001 and
Thereafter" available at http://tax.ohio.gov/divisions/communications/information_releases/picft200201.html.