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User Stats

12
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8
Votes
Joshua Awodele
  • Investor
  • Stamford, CT
8
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12
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Connecticut Section 168k Limitations

Joshua Awodele
  • Investor
  • Stamford, CT
Posted

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.

User Stats

99
Posts
97
Votes
Benjamin Weinhart
Tax & Financial Services
  • Accountant
  • Cincinnati OH 45209, USA
97
Votes |
99
Posts
Benjamin Weinhart
Tax & Financial Services
  • Accountant
  • Cincinnati OH 45209, USA
Replied

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)

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7,310
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9,045
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Bill B.#3 1031 Exchanges Contributor
  • Investor
  • Las Vegas, NV
9,045
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7,310
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Bill B.#3 1031 Exchanges Contributor
  • Investor
  • Las Vegas, NV
Replied

Minnesota is the same. Or close enough. 

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User Stats

263
Posts
282
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Kory Reynolds
Pro Member
  • Accountant
  • NH
282
Votes |
263
Posts
Kory Reynolds
Pro Member
  • Accountant
  • NH
Replied

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.

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44
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21
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Malik Javed
Tax & Financial Services
  • Specialist
  • Los Angeles California
21
Votes |
44
Posts
Malik Javed
Tax & Financial Services
  • Specialist
  • Los Angeles California
Replied
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.

User Stats

12
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8
Votes
Joshua Awodele
  • Investor
  • Stamford, CT
8
Votes |
12
Posts
Joshua Awodele
  • Investor
  • Stamford, CT
Replied
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?

User Stats

12
Posts
8
Votes
Joshua Awodele
  • Investor
  • Stamford, CT
8
Votes |
12
Posts
Joshua Awodele
  • Investor
  • Stamford, CT
Replied
Quote from @Bill B.:

Minnesota is the same. Or close enough. 


Thank you for the reply.

It's definitely a bummer!

User Stats

12
Posts
8
Votes
Joshua Awodele
  • Investor
  • Stamford, CT
8
Votes |
12
Posts
Joshua Awodele
  • Investor
  • Stamford, CT
Replied
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.

User Stats

12
Posts
8
Votes
Joshua Awodele
  • Investor
  • Stamford, CT
8
Votes |
12
Posts
Joshua Awodele
  • Investor
  • Stamford, CT
Replied
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.

User Stats

99
Posts
97
Votes
Benjamin Weinhart
Tax & Financial Services
  • Accountant
  • Cincinnati OH 45209, USA
97
Votes |
99
Posts
Benjamin Weinhart
Tax & Financial Services
  • Accountant
  • Cincinnati OH 45209, USA
Replied
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.

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7,864
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3,380
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Basit Siddiqi
Pro Member
  • Accountant
  • New York, NY
3,380
Votes |
7,864
Posts
Basit Siddiqi
Pro Member
  • Accountant
  • New York, NY
Replied

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.