Changes to Pennsylvania Corporate Income Tax Depreciation for Tax Year 2017 – July 05, 2018 by Sara Britt

Pennsylvania Governor Tom Wolf signed S.B. 1056 on June 28, 2018, officially decoupling the 100% bonus depreciation deduction under the Tax Cuts and Jobs Act (TCJA) and providing for additional current-year deductions.
 
Specifically, S.B. 1056 amends the definition of “taxable income” for Pennsylvania corporate net income tax purposes to address depreciation adjustments for:                    

  • Property placed in service prior to September 28, 2017 (subject to 50% bonus depreciation), and
  • Property placed in service after September 27, 2017 (subject to 100% bonus depreciation). 

S.B. 1056 affects taxpayers subject to the corporate net income tax and is effective for tax years beginning on or after January 1, 2017. Essentially, this change allows the remaining deduction to be written off earlier for assets placed in service prior to September 28, 2017, and simplifies taking the full deduction for assets placed in service after September 27, 2017. 

Placed in Service Prior to September 28, 2017

S.B. 1056 does not alter the current year add back and deduction rules for property placed in service prior to September 28, 2017. However, S.B. 1056 added an additional deduction to claim remaining depreciation for the earlier of:

a) the taxable year in which the qualified property is fully depreciated for federal income tax purposes OR
b) the qualified property is sold or otherwise disposed of by the taxpayer.
 
Previously, taxpayers could not take the additional deduction to claim remaining depreciation until the property was sold or disposed of by the taxpayer.
 
Taxpayers that maintain their fixed assets internally on their own software systems should review Pennsylvania depreciation reports to identify assets that were fully depreciated for federal income tax purposes but not for Pennsylvania corporate net income tax purposes. An additional deduction may be available on the 2017 Pennsylvania corporate income tax return.
 
Taxpayers that have outsourced the maintenance of their fixed assets should consult with their tax advisor to determine whether an additional deduction is available for the 2017 Pennsylvania corporate income tax return.
 
If the 2017 return was already filed, taxpayers can amend the return to take advantage of the new rules. 

Placed in Service After September 27, 2017

Taxpayers subject to the Pennsylvania corporate net income tax are required to add back the amount of bonus depreciation deducted to arrive at federal taxable income. Taxpayers are then allowed an additional deduction equal to the amount of depreciation that would have been available in the current year without application of bonus depreciation. Taxpayers may take an additional deduction to claim remaining depreciation in the taxable year in which the property is sold or disposed of by the taxpayer.
 
Taxpayers that maintain their fixed assets internally on their own software systems should update the applicable depreciation keys in their software to reflect the new Pennsylvania adjustment.
  
Please contact a member of your service team, or contact Sara Britt at sbritt@cohencpa.com or Hannah Prengler at hprengler@cohencpa.com for further discussion.
 

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.