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How do I calculate my Ohio depreciation deduction?

The amount of the deduction depends solely on the amount of the addback. Taxpayers can only deduct amounts that they added back in a prior year. This deduction can be claimed even if the taxpayer no longer directly or indirectly owns the asset. The deduction is not transferable from one taxpayer to another.

• 5/6 of their depreciation expense in a given tax year should deduct 1/5 of the amount added back in the subsequent five years;
• 2/3 of their depreciation expense in a given tax year (because of a 10% increase in Ohio employer withholding) should deduct 1/2 of the amount added back in the subsequent two years; or
• All of their depreciation expense in a given tax year (because of a federal net operating loss (NOL)) should deduct 1/6 of the amount added back in the subsequent six years.

Example 1:  Mark added back \$150,000 (5/6) of depreciation for the current tax year. For each of the 5 subsequent tax years, Mark can deduct:

• Mark’s annual depreciation deduction: \$16,667 + \$13,333 = \$30,000

If instead, Mark added back \$120,000 (2/3) for the current tax year, for each of the 2 subsequent tax years, he can deduct:

• Mark’s annual depreciation deduction: \$33,333 + \$26,667 = \$60,000

Finally, if Mark added back \$180,000 (6/6) for the current tax year, for each of the 6 subsequent tax years, he can deduct:

• Mark’s annual depreciation deduction: \$16,667 + \$13,333 = \$30,000

Exception: A person generally eligible for a depreciation deduction cannot claim the deduction in any tax year that includes a federal NOL, an NOL carryback, or an NOL carryforward. Instead, the person must carry forward the deduction to the return for the next subsequent tax year that does not report an NOL.

Example 2: Mark added back \$150,000 (5/6) of depreciation for the current tax year. The following table shows Mark’s federal adjusted gross income for the subsequent 5 years:

 Tax Year Current Year Year 1 Year 2 Year 3 Year 4 Year 5 Mark's FAGI \$100,000 -\$50,000 -\$90,000 \$45,000 \$75,000 \$125,000

Because of the NOLs, Mark cannot claim his Ohio depreciation deduction in years 1 or 2. Instead, he must carry each of them forward to the first year without an NOL (year 3). The following table shows Mark’s Ohio depreciation deduction for the applicable period:

 Tax Year Year 1 Year 2 Year 3 Year 4 Year 5 Mark's Ohio Depreciation Deduction \$0 \$0 \$90,000* \$30,000 \$30,000

*Year 3 depreciation deduction: Deduction from tax years 1, 2 and 3 = \$30,000 + \$30,000 + \$30,000

The department provides a worksheet to assist in the calculation of future tax year’s depreciation deductions that can be found in the “Worksheets” section of the IT 1040 and SD 100 Instructions.

See R.C. 5747.01(A)(21)(a) and (c).


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