Effective Date: Applicable to property placed in service after December 31, 2007, that is subject to the 50% stimulus depreciation allowed under I.R.C. §168(k).
Statutory Authority: Conn. Gen. Stat. §12-217(b).
Stimulus Depreciation: Section 103 of the Economic Stimulus Act of 2008, Pub. L. No. 110-185, 122 Stat. 613 (February 13, 2008) (Stimulus Act) amends I.R.C. §168(k) to allow a 50% stimulus depreciation for certain qualified property acquired and placed in service after December 31, 2007, and before January 1, 2009, (before January 1, 2010, for certain transportation property and certain property with a long production period). See also Rev. Proc. 2008-54, 2008-38 I.R.B. (August 29, 2008). As the stimulus depreciation may be claimed by corporations that place qualifying property in service on or after December 31, 2007, corporations whose 2007 income year ends in 2008 (non-calendar year filers) may claim the stimulus depreciation on their 2007 federal income tax return.
Will corporations that are subject to the Connecticut corporation business tax be eligible to claim the stimulus depreciation? No. The 50% stimulus depreciation passed by the United States Congress in the Stimulus Act is set forth in I.R.C. §168(k). In 2002, the Connecticut General Assembly amended Conn. Gen. Stat. §12-217(b) to provide that, in determining net income for purposes of the Connecticut corporation business tax, the deduction allowed for depreciation in I.R.C. §168(k) would not apply. See 2002 Conn. Pub. Acts 1, §56 (May 9 Spec. Sess.).
If the stimulus depreciation is claimed for federal income tax purposes, there will be a difference between Modified Accelerated Cost Recovery System (MACRS) depreciation allowed for federal purposes and MACRS depreciation allowed for Connecticut corporation business tax purposes. If a corporation claims the stimulus depreciation for federal purposes, the regular MACRS depreciation is calculated after reducing the adjusted basis of the new property by the stimulus depreciation. Because this allowance is not permitted for Connecticut corporation business tax purposes, the corporation will use a different basis to calculate MACRS depreciation for Connecticut and federal purposes.
What must a corporation do if it claims the stimulus depreciation for federal tax purposes but cannot claim it for Connecticut tax purposes? Since a corporation cannot claim the stimulus depreciation for Connecticut tax purposes, certain modifications must be made for purposes of calculating the Connecticut corporation business tax.
The modifications a corporation must make are:
Thus, the corporation must calculate MACRS depreciation twice: first, reflecting the stimulus depreciation; and second, reflecting the MACRS depreciation without the stimulus depreciation. A corporation that claims the stimulus depreciation must keep a separate depreciation schedule for Connecticut corporation business tax purposes.
Example: A non–calendar year corporation acquires and places in service qualified property after December 31, 2007, but before January 1, 2009. Assume that the equipment is MACRS 5-year property, that the half-year convention applies, that the purchase price is $100,000, and that no amount is expensed under I.R.C. §179. For federal tax purposes, the corporation claims the bonus depreciation under I.R.C. §168(k) in the amount of $50,000 ($100,000 x 50%). It then reduces its basis in the equipment to $50,000 and uses that reduced basis to calculate its federal MACRS depreciation of $10,000, ($50,000 x 20%) for a total deduction of $60,000 in the first year.
For Connecticut corporation business tax purposes, the corporation must:
In subsequent years, the corporation will subtract from federal net income (loss) the difference between the Connecticut MACRS depreciation and the federal MACRS depreciation, until the property is fully depreciated. Ultimately, if the property is held until it is fully depreciated, the taxpayer will be able to claim, albeit in different years, the same amount of depreciation for Connecticut corporation business tax purposes and federal tax purposes.
How is the adjustment for the stimulus depreciation to be reported on the 2007 Corporation Business Tax Return? The corporation should follow the steps provided below to make the necessary adjustments to the computation of net income:
Will the 2008 Forms CT-1120, CT-1120CR, CT-1120U, and CT-1120X be revised to reflect the modifications for purposes of calculating the corporation business tax? Yes. The 2008 Forms CT-1120, CT-1120CR, CT-1120U, and CT-1120X will contain the appropriate lines to make the necessary addition and subtraction modifications. In addition, corporations will have to complete Schedule J, on Form CT-1120 ATT, which will provide a separate line to account for the difference between the federal and state depreciation amounts for 2008.
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