Pennsylvania Issues Bonus Depreciation Guidance

Pennsylvania has issued guidance regarding treatment of federal bonus depreciation for corporate taxpayers. The guidance discusses changes made by recently enacted legislation.

Pennsylvania continues to disallow bonus depreciation.

Before Recent Legislation

Previously, corporations could deduct federal bonus depreciation over several tax years after assets were placed in service. Pennsylvania provided for the recovery of the disallowed depreciation by providing for an additional deduction in certain circumstances. The additional deduction was equal to 3/7 of the remaining depreciation amount, not including the depreciation claimed under IRC Sec. 168(k). Additionally, upon the disposition, sale, or transfer of the asset, the corporation could deduct unused bonus depreciation.

Deduction for Property Placed in Service Before September 28, 2017

Pennsylvania will continue to allow depreciation deductions under the previous law for property in service before September 28, 2017. Taxpayer can now take an additional deduction in the earlier of the tax year the property is:

  • fully depreciated; or
  • is sold or otherwise disposed of and the depreciation has not been fully recovered.

Deduction for Property Placed in Service On or After September 28, 2017

An additional deduction for depreciation of qualified property placed in service after September 27, 2017 is now allowed. The additional deduction is limited to the depreciation amounts under the Modified Accelerated Cost Recovery System (MACRS). In the tax year the corporation sells or disposes of the assets subject to bonus depreciation, the corporation can deduct any unused bonus depreciation.

Amended Tax Returns

Pennsylvania will allow taxpayers who filed 2017 tax returns, having assets subject to bonus depreciation placed in service on or after September 28, 2017, to file amended returns. Taxpayers can amend their income tax returns to:

  • disallow bonus depreciation on assets placed in service on or after September 28, 2017; and
  • to claim an additional deduction for the amount allowed under MACRS.

Corporation Tax Bulletin 2018-03, Pennsylvania Department of Revenue, July 6, 2018, ¶204-644

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