Connecticut Looking at Bonus Depreciation, Sec. 179 Adjustments

Connecticut taxpayers who claim federal deductions may be looking at new income tax adjustments.  Both corporate and individual taxpayers would be affected.

The Connecticut General Assembly passed a bill that implements some of Gov. Dannel P. Malloy’s proposals to counteract changes enacted by the Tax Cuts and Jobs Act (TCJA).

The state’s responses to the TCJA would include:

  • adjustments for corporate business or personal income taxpayers who claim a federal asset expense deduction;
  • an adjustment for personal income taxpayers who claim a federal bonus depreciation deduction; and
  • an adjustment for corporate business taxpayers that claim a Connecticut dividends received deduction.

Changes to the Asset Expense Deduction Adjustment

IRC Sec. 179 provides taxpayers an election to expense certain trade or business property in the year acquired. Generally, the property is deducted through deprecation. Certain thresholds apply when a taxpayer makes to electron to treat the purchase as an expense. The TCJA increased the dollar and investment limits to:

  • $1 million; and
  • $2.5 million.

In response to this change, Connecticut would:

  • require an addition adjustment by corporations and individuals for 80% of their federal IRC Sec. 179 deduction; and
  •  allow a subtraction adjustment for 25% of that amount in each of the next 4 tax years.

Changes to the Bonus Depreciation Deduction Adjustment

In addition, the TCJA increased the bonus depreciation deduction to 100% for property acquired and placed in service:

  • after September 27, 2017; and
  • before January 1, 2023.

Under this bill, Connecticut would:

  • require an addition adjustment by individuals for their entire bonus depreciation deduction; and
  • allow a subtraction adjustment for 25% of that amount in each of the next 4 tax years.

Changes to the Dividends Received Deduction Adjustment

Effective after 2017, nondeductible expenses would equal 10% of all dividends received by a corporation during the tax year. In addition, a corporation must apportion those expenses if it conducts business both inside and outside Connecticut.

Under current law, corporate business taxpayers computing a Connecticut dividends received deduction exclude expenses related to the dividends.

The bill would allow a taxpayer to petition for an alternate percentage if it believes the dividend expenses are less than 10% of those dividends.

S.B. 11, as passed by the Connecticut Senate on May 8 and by the House of Representatives on May 9, 2018

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CCHTaxGroup

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