Connecticut Section 168k Limitations

[Joshua Awodele]

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

[Benjamin Weinhart]

No, this is common for states to not follow the federal guidelines when it comes to bonus depreciation, there is no exemption or other work-around. You will have a mismatch between depreciation allowed from the federal & state level for the entire life of the property which can create some added administrative burden for some.

Just in case there is confusion by the way, you are still allowed to take bonus depreciation under your federal return, just not for the state of Connecticut (among some others if others are reading. It's a case-by-case basis)

[Bill B.]

Minnesota is the same. Or close enough. 

[Kory Reynolds]

Nearly every state disallows bonus depreciation.  Many states have a limitation on 179 that is different from the Feds.

Some have really painful rules on dealing with that bonus depreciation addbacks.

You still benefit from the cost segregation study without the bonus depreciation - say your cost segregation study broke out $100k of 5 year property - now instead of spreading that out over 27.5 / 39 years, you get to take it over 5 years for your local state.

You still get the bonus depreciation amount on your Federal return, regardless of what the state does.

[Malik Javed]

Quote from @Joshua Awodele:

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

Unfortunately, some states like Connecticut and California do not allow bonus, QIP, and limit Section 179 deductions. At this time there's no other IRC section that can work around the state issue.

[Joshua Awodele]

Quote from @Benjamin Weinhart:

No, this is common for states to not follow the federal guidelines when it comes to bonus depreciation, there is no exemption or other work-around. You will have a mismatch between depreciation allowed from the federal & state level for the entire life of the property which can create some added administrative burden for some.

Just in case there is confusion by the way, you are still allowed to take bonus depreciation under your federal return, just not for the state of Connecticut (among some others if others are reading. It's a case-by-case basis)

 Thank you Benjamin. I wonder what the depreciation schedule for Connecticut will look like then. If they'll disallow you claiming a big chunk at once, in what way are you allowed to take depreciation for now and future years?

[Joshua Awodele]

Quote from @Bill B.:

Minnesota is the same. Or close enough. 

Thank you for the reply.

It's definitely a bummer!

[Joshua Awodele]

Quote from @Kory Reynolds:

Nearly every state disallows bonus depreciation.  Many states have a limitation on 179 that is different from the Feds.

Some have really painful rules on dealing with that bonus depreciation addbacks.

You still benefit from the cost segregation study without the bonus depreciation - say your cost segregation study broke out $100k of 5 year property - now instead of spreading that out over 27.5 / 39 years, you get to take it over 5 years for your local state.

You still get the bonus depreciation amount on your Federal return, regardless of what the state does.

 Thank you Kory. Appreciate the insight.

Reclassification definitely has it's merit for now and future deductions while allowing you to claim against federal and state taxes sidestepping the State's unfortunate approach to Bonus Depreciation. After doing the math, it looks like claiming section 168k now if only allowed against federal might be more favorable than reclassification.

[Joshua Awodele]

Quote from @Malik Javed:

Quote from @Joshua Awodele:

Just found out that Connecticut disallows section 168k & section 179 bonus depreciation. For reference, see: https://portal.ct.gov/-/media/drs/publications/ocg/ocg5bonus...

Is there an exemption to this rule or can bonus depreciation from a cost segregation study be applied via a different IRC code? Or any other tax strategy?

Thank you BP Nation.

Unfortunately, some states like Connecticut and California do not allow bonus, QIP, and limit Section 179 deductions. At this time there's no other IRC section that can work around the state issue.

 Thank you for your time Javed.

It's unfortunate, but ultimately, the federal deduction from the cost seg moves the needle a tiny bit. This is a good lesson for future tax planning.

[Benjamin Weinhart]

Quote from @Joshua Awodele:

Quote from @Benjamin Weinhart:

No, this is common for states to not follow the federal guidelines when it comes to bonus depreciation, there is no exemption or other work-around. You will have a mismatch between depreciation allowed from the federal & state level for the entire life of the property which can create some added administrative burden for some.

Just in case there is confusion by the way, you are still allowed to take bonus depreciation under your federal return, just not for the state of Connecticut (among some others if others are reading. It's a case-by-case basis)

 Thank you Benjamin. I wonder what the depreciation schedule for Connecticut will look like then. If they'll disallow you claiming a big chunk at once, in what way are you allowed to take depreciation for now and future years?

 I don't work in Connecticut enough to know this answer off-hand but a large majority of states that opt-out of bonus depreciation effectively pretend it doesn't exist. This means you would still get the 200% MACRS on most/all assets that would otherwise be subject to bonus depreciation.

Funnily enough, Ohio is not one of these states for my tax preparer friends who are looking for another reason not to work with Ohio :) (I live/work in Ohio, it's a wacky time). They instead use an alternative method separate from both of the mentioned methods.

[Basit Siddiqi]

You will be able to apply bonus depreciation on your federal return(this matters the most as the tax rate here is higher). There will be an 'adjustment' at the state level if the state does not recognize bonus depreciation / section 179 expense.

Best of luck.