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By:  Karen T. Syrylo

On June 28, 2018 Pennsylvania’s Governor Wolf signed into law Act 72, previously known as Senate Bill No. 1056, which had undergone final passage by both the house and senate on June 22. See the law at https://legiscan.com/PA/bill/SB1056/2017.  This finalizes the overturn of the Department of Revenue’s prior disallowance of all “bonus depreciation” deductions.  In Corporation Tax Bulletin 2017-02, the DOR had provided instructions to taxpayers that its interpretation of the state’s statute required a full add back of bonus depreciation claimed on the federal income tax return without any allowed state depreciation deduction for the same assets.  For full text of the now invalid Bulletin 2017-02 with the DOR’s explanation, see our prior coverage.

The new law is effective immediately and applies to all tax years beginning on or after January 1, 2017. Sections 401(3)1(r) and 401(3)1(s) now provide that:

For property placed in service before September 28, 2017, if an addback to state taxable income was made for the federal bonus depreciation, three sevenths of depreciation expense calculated under IRC section 167 is allowed until the entire bonus depreciation addition modification has been offset.  Then in the year the property on which federal bonus depreciation had been claimed is either disposed of or fully depreciated for federal purposes, an additional state deduction is allowed to the extent that the total state depreciation deductions had not equaled the full amount of federal depreciation claimed.

For property placed in service after September 27, 2017, bonus depreciation under IRC 168(k) is not allowed, but for state taxable income purposes the taxpayer is allowed a depreciation deduction as determined in accordance with sections 167 and 168 of the IRC except for 168(k).

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Last updated on September 4th, 2019 at 05:02 pm

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