Federal Bonus Depreciation
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FEDERAL BONUS DEPRECIATION

The State of Iowa did not couple with the 30% Federal bonus depreciation enacted in 2002. It is anticipated that Iowa will not couple with the 2003 Federal legislation increasing bonus depreciation to 50%.

Form IA 4562A should be used to compute Iowa depreciation on items where Federal bonus depreciation was claimed. The total adjustment for decoupling should be entered on line 14. Totals for lines 5, 6, 7, 10 and 11 should be the same as on the equivalent lines from the Federal 1040 and the total adjustment for bonus depreciation from IA 4562A on line 14.

Iowa did not couple with the provisions of this Act in the following two areas:

a. Bonus Depreciation

Iowa did not adopt the “bonus depreciation” provisions for assets placed in service on or after September 11, 2001. An adjustment will have to be made on form IA4562A to account for the difference between the Federal depreciation and the Iowa depreciation.

b. Net Operating Losses

Iowa did not adopt the provisions for the five-year carryback for net operating losses incurred in 2001 and 2002. Therefore, Iowa net operating losses will still be carried back two years, except for losses incurred in presidentially declared disaster areas (3-year carryback) and losses incurred by farm corporations (5-year carryback).

c. Bonus Depreciation and IRC Section 179

As of January 30, 2004, Iowa has NOT coupled with the increase in the Section 179 expense. Therefore, the Section 179 limit for Iowa purposes at this time is $25,000.

The Iowa Legislature will decide this legislative session whether or not to couple with the changes to the Internal Revenue Code that increase the Section 179 expense to $100,000. It is unknown at this time when the Iowa Legislature will make its decision.

The department is directing taxpayers to file their returns assuming that the Section 179 limit is $25,000.

The preferred method to reflect the decoupling with the IRS is to incorporate the change on the IA 4562A, which will then carry over to line 14. If the adjustment for Section 179 cannot be addressed using the IA 4562A, then simply make the adjustment directly on line 14 of the IA 1040.

If the Iowa Legislature decides to adopt the $100,000 Federal provision, then an amended return can be filed to claim the higher expense amount.