If my corporation claimed federal bonus depreciation, does it have to add part of it back on its Nebraska corporate 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 corporation 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 corporate counterpart to the individual ruling (Revenue Ruling 22-02-1) and the fiduciary ruling (Revenue Ruling 23-02-1).

Where it goes on the return. Enter 85% of the bonus depreciation deducted on a 2000 or 2001 federal return as an "other adjustment" on:

• line 6, Nebraska Schedule A, Form 1120N (for 2001 returns), or
• line 5, Nebraska Schedule A, Form 1120N (for 2000 returns).

If you already filed the original Form 1120N, report the increase on an Amended Nebraska Corporation Income Tax Return, Form 1120XN.

Unitary (multistate) corporations. A corporation carrying on a unitary business both inside and outside Nebraska increases federal taxable income by the full amount of the bonus depreciation received, then apportions that increase to Nebraska the same way it apportions its income under Neb. Rev. Stat. §77-2734.05.

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

What this means for you

A Nebraska-only corporation

Add back 85% of your federal bonus depreciation on Schedule A of Form 1120N, then recover it as a 20%-per-year subtraction over five years starting in 2005.

A multistate corporation with a unitary business

Add back the full amount of bonus depreciation to federal taxable income and apportion it to Nebraska under §77-2734.05 — the same apportionment factor you use for the rest of your income.

Common questions

Q: How much do I add back?
A: 85% for a corporation taxed only in Nebraska; a unitary multistate corporation adds back the full amount and then apportions it to Nebraska.

Q: Which line do I use?
A: Line 6 of Nebraska Schedule A, Form 1120N for 2001 returns (line 5 for 2000 returns); use Form 1120XN to amend an already-filed return.

Q: Do I ever get the deduction back?
A: Yes — subtract 20% of the added-back amount each year for five years, starting with the first tax year beginning on or after January 1, 2005.

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.
• Neb. Rev. Stat. §77-2734.05 — the apportionment method a unitary corporation uses for the full bonus-depreciation add-back.
• Form 1120N, Nebraska Schedule A (lines 6 and 5); Form 1120XN — where the 85% add-back is reported, and the amended-return form.

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/rr240201.pdf

Original ruling text

Revenue Ruling 24-02-1
May 3, 2002
Corporate Income Tax -- Bonus Depreciation. CORPORATE TAXPAYERS 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 corporations 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, corporate 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 adjustment” on line 6, Nebraska Schedule A,
Form 1120N (for 2001 returns), or line 5, Nebraska Schedule A, Form 1120N (for 2000 returns).
If an original Nebraska Form 1120N has already been filed, report the increase on an Amended
Nebraska Corporation Income Tax Return, Form 1120XN.
For a corporation with a unitary business having activity both inside and outside the state, federal
taxable income shall be increased by the full amount of bonus depreciation received and the
increase shall be apportioned to Nebraska in the same manner as income is apportioned to the state
pursuant to Neb. Rev. Stat. § 77-2734.05.
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 corporation’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