The Ohio Tax Department is now requiring bonus depreciation addback without exception.
Under continuing Ohio law, if a taxpayer deducts bonus depreciation under IRC § 168(k) or 179 on their federal return for the taxable year, when the taxpayer calculates their Ohio adjusted gross income, they must add back a certain portion of that deduction. The amount required to be added back is one of the following:
- The Department requires 100% (6/6) addback, if the taxpayer’s federal adjusted gross income (FAGI) was a net operating loss (no exceptions). The taxpayer may deduct 1/6 of the addback in the subsequent 6 years. Also, the prior year depreciation adjustments (e.g. 1/5 deductions) are suspended. The 1/5 deductions may be taken in the next year that does not report an NOL.
- None of it, if the taxpayer increased Ohio income tax withholdings from the prior year by at least the amount of the bonus deduction
- Two-thirds of it, if the taxpayer increased Ohio income tax withholdings from the prior year by 10% or more
- Five-sixths of it, in all other situations
Until March 2019, the Ohio Tax Department expressly permitted a reduced addback if the taxpayer was prevented from fully deducting the bonus depreciation due to passive activity loss limitations, basis limitations, or at-risk limitations. In the Department’s Information Release “PI & CFT 2002-02” it stated the taxpayer could defer the addback until the taxable year the taxpayer was able to realize the bonus depreciation benefit.
In March 2019, the Tax Department “archived” the 2002-02 Information Release and replaced it with Frequently Asked Question #11—”Do federal loss limitations affect my Ohio depreciation addback?” Here’s the Department’s response:
The amount of I.R.C. §179 and §168(k) bonus depreciation subject to addback is not affected by limitations contained in other sections of the Internal Revenue Code (for example, the excess business losses limitation, passive activity loss limitations, at-risk loss limitations). Additionally, the amount is not limited based on the taxpayer’s computation of federal adjusted gross income.
You must add back the appropriate fraction (5/6, 2/3, 6/6) of the total depreciation expenses allowed by I.R.C. §168(k) and §179.
See R.C. 5747.01(A)(20)(a).
None of the above affects when corresponding bonus depreciation deductions are prohibited. Ohio law still prohibits a taxpayer from taking a bonus depreciation deduction for a taxable year if the taxpayer’s FAGI for that year was a net operating loss or if the taxpayer’s FAGI was reduced by an NOL carryforward or carryback.