If a trust or estate claimed federal bonus depreciation, must it add part of it back on its Nebraska fiduciary income tax return?

Plain-English summary

Nebraska did not fully follow the extra federal "bonus depreciation" Congress created in the Job Creation and Worker Assistance Act of 2002 (Internal Revenue Code sections 168(k) and 1400L). Because of Nebraska legislation, for returns filed after September 10, 2001, a fiduciary (an estate or trust) that deducted that bonus depreciation on its federal return must add back 85% of it in figuring Nebraska income — for assets placed in service after September 10, 2001 and before September 11, 2004. This is the fiduciary counterpart to the individual ruling (Revenue Ruling 22-02-1) and the corporate ruling (Revenue Ruling 24-02-1).

Where it goes on the return. Enter 85% of the bonus depreciation deducted on a 2000 or 2001 federal return as an "other Nebraska adjustment increasing federal taxable income" on line 5, Nebraska Fiduciary Income Tax Return, Form 1041N, for both 2000 and 2001 returns. If you already filed the original Form 1041N, report the increase on an amended Nebraska return.

Distributions to beneficiaries. If the fiduciary distributes income to beneficiaries in the current year, the bonus depreciation is distributed to those beneficiaries the same way income is, so they account for it on their own Nebraska Individual Income Tax Returns (Form 1040N) — the same mechanism described in Revenue Ruling 22-02-1.

Getting it back later. The amount added back is subtracted in equal pieces of 20% per year over five years, beginning with the fiduciary's first tax year that begins on or after January 1, 2005.

What this means for you

An estate or trust that claimed federal bonus depreciation

You can't keep the full federal deduction for Nebraska. Add back 85% now on line 5 of Form 1041N, then recover it as a 20%-per-year subtraction over five years starting in 2005.

A beneficiary of an estate or trust

If income was distributed to you, your share of the bonus-depreciation add-back comes with it and is reported on your own Form 1040N, just like your share of the entity's income.

Common questions

Q: How much does the estate or trust add back?
A: 85% of the federal bonus depreciation for qualifying assets placed in service after September 10, 2001 and before September 11, 2004.

Q: Which line on Form 1041N?
A: Line 5, as an "other Nebraska adjustment increasing federal taxable income," for both 2000 and 2001 returns.

Q: What happens when income is distributed to beneficiaries?
A: The bonus depreciation follows the income distribution and is reported by each beneficiary on their own Form 1040N.

Citations and references

• Job Creation and Worker Assistance Act of 2002 — Internal Revenue Code sections 168(k) and 1400L — the federal bonus depreciation that triggers the Nebraska add-back.
• Form 1041N, line 5 — where the fiduciary reports the 85% add-back.
• Revenue Ruling 22-02-1 — the companion individual ruling that governs how distributed bonus depreciation is reported by beneficiaries.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr230201.pdf

Original ruling text

REVENUE RULING 23-02-1
May 3, 2002
Fiduciary Income Tax -- Bonus Depreciation. FIDUCIARIES RECEIVING BONUS
DEPRECIATION UNDER THE FEDERAL JOB CREATION AND WORKER ASSISTANCE
ACT OF 2002 (SECTIONS 168(k) OR 1400L OF THE INTERNAL REVENUE CODE), MUST
ADJUST THEIR NEBRASKA INCOME TAX RETURNS TO ADD BACK A PORTION OF
SUCH BONUS DEPRECIATION.
Advice has been requested as to whether fiduciaries which received bonus depreciation under
certain federal law provisions must adjust their Nebraska income tax returns to add back a portion
of such bonus depreciation.
Due to recent legislation enacted by the Nebraska Legislature, for Nebraska income tax returns
filed after September 10, 2001, fiduciary taxpayers must increase federal taxable income by
eighty-five percent of any amount of bonus depreciation received under the Job Creation and
Worker Assistance Act of 2002 (sections 168(k) or 1400L of the Internal Revenue Code of 1986, as
amended) for assets placed in service after September 10, 2001, and before September 11, 2004.
Specifically, eighty-five percent of bonus depreciation deducted on a tax year 2000 or 2001 federal
income tax return should be entered as an “other Nebraska adjustment increasing federal taxable
income” on line 5, Nebraska Fiduciary Income Tax Return, Form 1041N, for both 2000 and 2001
returns. If an original Nebraska Form 1041N has already been filed, report the increase on an
amended Nebraska return.
For fiduciaries that distribute income to beneficiaries in the current year, the bonus depreciation
shall be distributed to such beneficiaries in the same manner as income is distributed for purposes
of calculating their tax liabilities on their Nebraska Individual Income Tax Returns, Forms 1040N.
See Revenue Ruling 22-02-1.
The amount of bonus depreciation added to federal taxable income for Nebraska purposes shall be
subtracted in later taxable years as follows:
Twenty percent of the total amount of bonus depreciation added back may be subtracted in
the fiduciary’s first taxable year beginning or deemed to begin on or after January 1, 2005, as
determined under the Internal Revenue Code of 1986, as amended; and
Twenty percent in each of the next four following taxable years.
APPROVED:

Mary Jane Egr
State Tax Commissioner
May 3, 2002

Nebraska Department of Revenue, P.O. Box 94818, Lincoln, Nebraska 68509-4818