Section 179 expensing, 40.65, 53.23, 59.24
ARC 4517C
REVENUE DEPARTMENT[701]
Adopted and Filed
Rule making related to section 179 expensing
The Revenue Department hereby amends Chapter 40, "Determination of Net Income," Chapter 53, "Determination of Net Income," and Chapter 59, "Determination of Net Income," Iowa Administrative Code.
Legal Authority for Rule Making
This rule making is adopted under the authority provided in Iowa Code section 422.68.
State or Federal Law Implemented
This rule making implements, in whole or in part, 2019 Iowa Acts, Senate File 220.
Purpose and Summary
Recently enacted 2019 Iowa Acts, Senate File 220, raises to $70,000 the 2018 Iowa section 179 deduction limitation for expensing certain depreciable business assets applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax, and financial institutions subject to the franchise tax, with a reduction (phase-out) limitation of $280,000. Prior to Senate File 220, these higher limitations applied only to individuals and entities taxed as partnerships. These amendments update the existing charts in rules 701—40.65(422), 701—53.23(422), and 701—59.24(422) for individual income tax, corporate income tax, and franchise tax to reflect the higher limitations now applicable to corporations and financial institutions for 2018. These amendments update references to the lower limits in the rules and examples to reflect the higher limits and make several technical corrections. Finally, at the time these rules were originally adopted, the federal section 179 dollar and reduction limitation amounts as indexed for inflation for 2019 were not known. The Internal Revenue Service has since released these indexed amounts, so the updated amounts have been added to the charts provided in each of the three rules.
Public Comment and Changes to Rule Making
Notice of Intended Action for this rule making was published in the Iowa Administrative Bulletin on April 24, 2019, as ARC 4406C. No public comments were received. No changes from the Notice have been made.
Adoption of Rule Making
This rule making was adopted by the Department on May 29, 2019.
Fiscal Impact
This rule making has no fiscal impact beyond that of the legislation it is intended to implement, as described in the Legislative Services Agency Fiscal Note for 2019 Iowa Acts, Senate File 220.
Jobs Impact
After analysis and review of this rule making, no impact on jobs has been found.
Waivers
Any person who believes that the application of the discretionary provisions of this rule making would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any, pursuant to rule 701—7.28(17A).
Review by Administrative Rules Review Committee
The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rule making by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rule making at its regular monthly meeting or at a special meeting. The Committee's meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).
Effective Date
This rule making will become effective on July 24, 2019.
The following rule-making actions are adopted:
Item 1. Amend rule 701—40.65(422) as follows:
701—40.65(422) Section 179 expensing.
40.65(1) In general. Iowa taxpayers who elect to expense certain depreciable business assets in the year the assets were placed in service under Section 179 of the Internal Revenue Code must also expense those same assets for Iowa income tax purposes in that year. However, for certain years, the Iowa limitations on this deduction are different from the federal limitations for the same year. This means that for some tax years, adjustments are required to determine the correct Iowa section 179 expensing deduction, as described in this rule.
40.65(2) Claiming the deduction.
a. Timing and requirement to follow federal election. A taxpayer who takes a federal section 179 deduction must also take the deduction for the same asset in the same year for Iowa purposes, except as expressly provided by Iowa law or this rule. A taxpayer who takes a federal section 179 deduction is not permitted to opt out of taking the same deduction for Iowa purposes. A taxpayer who does not take a federal section 179 deduction on a specific qualifying asset is not permitted to take a section 179 deduction for Iowa purposes on that asset.
b. Qualifying for the deduction. Whether a specific business asset qualifies for a section 179 deduction is determined by the Internal Revenue Code (Title 26, U.S. Code) and applicable federal regulations for both federal and Iowa purposes.
c. Amount of the Iowa deduction. Generally, the Iowa deduction must equal the amount of the federal deduction taken for the same asset in the same year, subject to special Iowa limitations. The following chart provides a comparison of the Iowa and federal section 179 dollar limitations and reduction limitations. For tax years beginning on or after January 1, 2018, and before January 1, 2019, the Iowa limitations applicable to individuals and corporations (both C and S corporations) are not the same; see See rule 701—53.23(422) for the section 179 limitations imposed on rules applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax, and see rule 701—59.24(422) for the section 179 limitations imposed on rules applicable to financial institutions subject to the franchise tax.
Section 179 Deduction Allowances Under Federal and Iowa Law |
||||
|
Federal |
Iowa |
||
Tax Year |
Dollar Limitation |
Reduction Limitation |
Dollar Limitation |
Reduction Limitation |
2003 |
$ 100,000 |
$ 400,000 |
$ 100,000 |
$ 400,000 |
2004 |
102,000 |
410,000 |
102,000 |
410,000 |
2005 |
105,000 |
420,000 |
105,000 |
420,000 |
2006 |
108,000 |
430,000 |
108,000 |
430,000 |
2007 |
125,000 |
500,000 |
125,000 |
500,000 |
2008 |
250,000 |
800,000 |
250,000 |
800,000 |
2009 |
250,000 |
800,000 |
133,000 |
530,000 |
2010 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2011 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2012 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2013 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2014 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2015 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2016 |
500,000 |
2,010,000 |
25,000 |
200,000 |
2017 |
510,000 |
2,030,000 |
25,000 |
200,000 |
2018 |
1,000,000 |
2,500,000 |
70,000* |
280,000 |
2019 |
Indexed amount unknown as of 8/2/18 1,020,000 |
Indexed amount unknown as of 8/2/18 2,550,000 |
100,000 |
400,000 |
2020 and later |
Iowa limitations are the same as federal |
|||
*The Iowa limitations for 2018 are applicable to individuals and pass-through entities other than corporations or financial institutions. For Iowa limitations applicable to corporations (both C and S corporations) and entities subject to the corporate income tax, or to financial institutions subject to the franchise tax, see rules 701—53.23(422) and 701—59.24(422), respectively. |
d. to h. No change.
40.65(3) Section 179 deduction received from a pass-through entity. In some cases, an individual or entity that receives income from one or more pass-through entities may receive a section 179 deduction in excess of the Iowa deduction limitation listed in paragraph 40.65(2)"c" for a given year. The individual or entity may be eligible for a special election with regard to that excess section 179 deduction, as described in this subrule.
a. Tax years beginning before January 1, 2018. For tax years beginning before January 1, 2018, the amount of any section 179 deduction received in excess of the Iowa deduction limitation for that year is not eligible for the special election.
b. Special election available for tax years 2018 and 2019. For tax years beginning on or after January 1, 2018, but before January 1, 2020, an individual or entity, other than a corporation (both C and S corporations) or an entity subject to the corporate income tax or franchise tax, that receives a section 179 deduction from one or more pass-through entities in excess of the Iowa deduction limitation for that tax year may elect to deduct the excess in future years, as described in this subrule. See rule 701—53.23(422) for special rules applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax, and see rule 701—59.24(422) for special rules applicable to financial institutions subject to the franchise tax.
(1)This special election applies only to section 179 deductions passed through to the individual or entity by one or more other entities.
(2)If the total Iowa section 179 deduction passed through to the individual or entity exceeds the federal section 179 deduction limitation for that year, the individual or entity may only use the amount up to the federal limitation when calculating the deduction under this election. Any amount in excess of the federal limitation shall not be deducted for Iowa purposes.
c. to g. No change.
This rule is intended to implement Iowa Code section 422.7 as amended by 2018 Iowa Acts, Senate File 2417 2019 Iowa Acts, Senate File 220.
Item 2. Amend rule 701—53.23(422) as follows:
701—53.23(422) Section 179 expensing.
53.23(1) In general. Iowa taxpayers that elect to expense certain depreciable business assets in the year the assets were placed in service under section 179 of the Internal Revenue Code must also expense those same assets for Iowa income tax purposes in that year. However, for certain years, the Iowa limitations on this deduction are different from the federal limitations for the same year. This means that for some tax years, adjustments are required to determine the correct Iowa section 179 expensing deduction, as described in this rule.
53.23(2) Claiming the deduction.
a. Timing and requirement to follow federal election. A taxpayer that takes a federal section 179 deduction must also take the deduction for the same asset in the same year for Iowa purposes, except as expressly provided by Iowa law or this rule. A taxpayer that takes a federal section 179 deduction is not permitted to opt out of taking the same deduction for Iowa purposes. A taxpayer that does not take a federal section 179 deduction on a specific qualifying asset is not permitted to take a section 179 deduction for Iowa purposes on that asset.
b. Qualifying for the deduction. Whether a specific business asset qualifies for a section 179 deduction is determined by the Internal Revenue Code (Title 26, U.S. Code) and applicable federal regulations for both federal and Iowa purposes.
c. Amount of the Iowa deduction. Generally, the Iowa deduction must equal the amount of the federal deduction taken for the same asset in the same year, subject to special Iowa limitations. The following chart provides a comparison of the Iowa and federal section 179 dollar limitations and reduction limitations. For tax years beginning on or after January 1, 2018, and before January 1, 2019, the Iowa limitations applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax and to financial institutions subject to the franchise tax are not the same as the limitations applicable to individuals and other entities; see See rule 701—40.65(422) for the section 179 limitations imposed on rules applicable to individuals and other noncorporate entities, and see rule 701—59.24(422) for the section 179 limitations subject to rules applicable to financial institutions subject to the franchise tax.
Section 179 Deduction Allowances Under Federal and Iowa Law |
||||
|
Federal |
Iowa |
||
Tax Year |
Dollar Limitation |
Reduction Limitation |
Dollar Limitation |
Reduction Limitation |
2003 |
$ 100,000 |
$ 400,000 |
$ 100,000 |
$ 400,000 |
2004 |
102,000 |
410,000 |
102,000 |
410,000 |
2005 |
105,000 |
420,000 |
105,000 |
420,000 |
2006 |
108,000 |
430,000 |
108,000 |
430,000 |
2007 |
125,000 |
500,000 |
125,000 |
500,000 |
2008 |
250,000 |
800,000 |
250,000 |
800,000 |
2009 |
250,000 |
800,000 |
133,000 |
530,000 |
2010 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2011 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2012 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2013 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2014 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2015 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2016 |
500,000 |
2,010,000 |
25,000 |
200,000 |
2017 |
510,000 |
2,030,000 |
25,000 |
200,000 |
2018 |
1,000,000 |
2,500,000 |
25,000* 70,000 |
200,000 280,000 |
2019 |
Indexed amount unknown as of 8/2/18 1,020,000 |
Indexed amount unknown as of 8/2/18 2,550,000 |
100,000 |
400,000 |
2020 and later |
Iowa limitations are the same as federal |
|||
* The Iowa limitations for 2018 are applicable to corporations (both C and S corporations), entities subject to the corporate income tax, and financial institutions subject to the franchise tax. For Iowa limitations applicable to individuals and pass-through entities which are not corporations, see rule 701—40.65(422). |
d. Reduction. Both the federal and the Iowa deductions for section 179 assets are reduced (phased out dollar for dollar) for taxpayers whose total section 179 assets placed in service during a given year cost more than the amount specified (reduction limitation) for that year. Like the deduction limitation, the Iowa and federal reduction limitations are different for certain years. See paragraph 53.23(2)"c" for applicable limitations.
Example: Taxpayer, a corporation, purchases $400,000 worth of qualifying section 179 assets and places all of them in service in 2018. Taxpayer claims a section 179 deduction of $400,000 for the full cost of the assets on the 2018 federal return. For corporations, the Iowa section 179 deduction for 2018 is phased out dollar for dollar by the amount of section 179 assets placed in service in excess of $200,000 $280,000. This means that, for 2018, the Iowa deduction is fully phased out if the taxpayer placed in service section 179 assets that cost, in total, more than $225,000 $350,000. Since the cost of the qualifying assets in this example exceeds the Iowa section 179 phase-out limit, the taxpayer cannot claim any section 179 deduction on the Iowa return. However, the taxpayer may depreciate the entire cost of the assets for Iowa purposes.
e. Amounts in excess of the Iowa limits.
(1)Recovering the excess. Due to the differences between the Iowa and federal limitations for certain years, taxpayers may have a federal section 179 deduction that exceeds the amount allowed for Iowa purposes. This excess amount is handled in different ways depending on the source of the deduction.
1.Assets placed in service by the taxpayer or entity reporting the deduction. The cost of any section 179 assets placed in service by the taxpayer in excess of the Iowa limitation for a given year may be recovered through regular depreciation under Section 168 of the Internal Revenue Code, without regard to bonus depreciation under Section 168(k). The Iowa section 179 and depreciation deductions and any basis adjustments resulting from the difference in timing of the recovery between Iowa and federal law are calculated and tracked on forms made available on the department's website.
Example: Taxpayer, a corporation, purchases a $100,000 piece of equipment and places it in service in 2018. Taxpayer claims a section 179 deduction of $100,000 for the full cost of the equipment on the 2018 federal return. Taxpayer is also required to claim a section 179 deduction of $25,000 $70,000 on the 2018 Iowa return (the full amount of the federal deduction up to the Iowa limit for corporations for 2018). The taxpayer can depreciate the remaining $75,000 $30,000 cost of the equipment for Iowa purposes.
2.Special election for assets placed in service by a pass-through entity when the section 179 deduction is claimed by an owner of that pass-through. See subrule 53.23(3) for information on a special election available to certain owners of pass-through entities related to any section 179 deductions passed through from a partnership or other entity that, in the aggregate, exceed the Iowa limitations.
(2)Special information for pass-throughs. In the case of pass-through entities, section 179 limitations apply at both the entity level and the owner level. Pass-through entities that are required to file an Iowa return and that actually place section 179 assets in service should follow 53.23(2)"e"(1)"1" to account for any assets for which the total federal section 179 deductions for a given year exceeded the Iowa limitation. Owners of pass-throughs receiving section 179 deductions from one or more pass-throughs that, in the aggregate, exceed the Iowa limitations should follow 53.23(2)"e"(1)"2."
Example: A, Inc.(a corporation doing business exclusively in Iowa) owns 50 percent interests in each of three partnerships: C, D, and E. Partnership C, which also does business exclusively in Iowa, places $200,000 worth of section 179 assets in service during tax year 2019 and claims a federal section 179 deduction for the full cost of the assets. Because C is required to file an Iowa partnership return, C is subject to the Iowa section 179 limitations for 2019 and must adjust its Iowa section 179 deduction as provided in 40.65(2)"e"(1)"1." C passes through 50 percent of its section 179 deduction ($100,000 for federal purposes, $50,000 for Iowa purposes) to A, Inc. A, Inc.also receives $50,000 each in section 179 deductions from D and E, for a total of $150,000 in section 179 deductions (for Iowa purposes) in 2019. A, Inc.is subject to the $100,000 Iowa section 179 deduction limitation for 2019, but because A, Inc.received total section 179 deductions from one or more pass-throughs in excess of the 2019 Iowa limitation, A, Inc.is eligible for the special election referenced in 53.23(2)"e"(1)"2."
f. Income limitation. The Iowa section 179 deduction for any given year is limited to the taxpayer's income from active conduct in a trade or business in the same manner that the section 179 deduction is limited for federal purposes. If an allowable Iowa section 179 deduction exceeds the taxpayer's business income for a given year, any excess allowable Iowa section 179 deduction may be carried forward as described in paragraph 53.23(2)"g."
g. Carryforward. This paragraph applies only to amounts that do not exceed the Iowa section 179 deduction limitations for a given year but do exceed the taxpayer's business income for that year. As with the federal deduction, allowable Iowa section 179 deductions claimed in a given year that exceed a taxpayer's business income may be carried forward and claimed in future years. This carryforward, if any, is calculated using only amounts up to the Iowa limit. Any federal section 179 deduction the taxpayer claimed in excess of the Iowa limit is not an Iowa section 179 deduction and therefore is not eligible for the carryforward described in this paragraph. Such amounts must instead be recovered as described in paragraph 53.23(2)"e," or in subrule 53.23(3) for taxpayers receiving the deduction from one or more pass-through entities and making the special election as described in that subrule.
h. Difference in basis. Iowa adjustments for differences between the Iowa and federal section 179 deduction limitations may cause the taxpayer to have a different basis in the same asset for Iowa and federal purposes. Taxpayers are required to use forms made available on the department's website to calculate and track these differences.
53.23(3) Section 179 deduction received from a pass-through entity. In some cases, an entity that receives income from one or more pass-through entities may receive a section 179 deduction in excess of the Iowa deduction limitation listed in paragraph 53.23(2)"c" for a given year. The entity may be eligible for a special election with regard to that excess section 179 deduction, as described in this subrule.
a. Tax years beginning before January 1, 2019 2018. For tax years beginning before January 1, 2019 2018, the amount of any section 179 deduction received by a corporation (both C and S corporations) or an entity subject to the corporate income tax in excess of the Iowa deduction limitation for that year is not eligible for the special election.
b. Special election available for tax year 2019 years 2018 and 2019. For tax years beginning on or after January 1, 2019 2018, but before January 1, 2020, a corporation (both C and S corporations) or an entity subject to the corporate income tax that receives a section 179 deduction from one or more pass-through entities in excess of the Iowa deduction limitation for that tax year may elect to deduct the excess in future years, as described in this subrule. See rule 701—40.65(422) for special rules applicable to individuals and other noncorporate entities, and see rule 701—59.24(422) for special rules applicable to financial institutions subject to the franchise tax.
(1)This special election applies only to section 179 deductions passed through to the corporation or entity subject to the corporate income tax by one or more other entities.
(2)If the total Iowa section 179 deduction passed through to the corporation or entity subject to the corporate income tax exceeds the federal section 179 deduction limitation for that year, the corporation or other entity may only use the amount up to the federal limitation when calculating the deduction under this election. Any amount in excess of the federal limitation shall not be deducted for Iowa purposes.
c. to g. No change.
This rule is intended to implement Iowa Code section 422.35 as amended by 2018 Iowa Acts, Senate File 2417 2019 Iowa Acts, Senate File 220.
Item 3. Amend rule 701—59.24(422) as follows:
701—59.24(422) Section 179 expensing.
59.24(1) In general. Iowa taxpayers that elect to expense certain depreciable business assets in the year the assets were placed in service under Section 179 of the Internal Revenue Code must also expense those same assets for Iowa income tax purposes in that year. However, for certain years, the Iowa limitations on this deduction are different from the federal limitations for the same year. This means that for some tax years, adjustments are required to determine the correct Iowa section 179 expensing deduction, as described in this rule.
59.24(2) Claiming the deduction.
a. Timing and requirement to follow federal election. A taxpayer that takes a federal section 179 deduction must also take the deduction for the same asset in the same year for Iowa purposes, except as expressly provided by Iowa law or this rule. A taxpayer that takes a federal section 179 deduction is not permitted to opt out of taking the same deduction for Iowa purposes. A taxpayer that does not take a federal section 179 deduction on a specific qualifying asset is not permitted to take a section 179 deduction for Iowa purposes on that asset.
b. Qualifying for the deduction. Whether a specific business asset qualifies for a section 179 deduction is determined by the Internal Revenue Code (Title 26, U.S. Code) and applicable federal regulations for both federal and Iowa purposes.
c. Amount of the Iowa deduction. Generally, the Iowa deduction must equal the amount of the federal deduction taken for the same asset in the same year, subject to special Iowa limitations. The following chart provides a comparison of the Iowa and federal section 179 dollar limitations and reduction limitations. For tax years beginning on or after January 1, 2018, and before January 1, 2019, the Iowa limitations applicable to financial institutions subject to the franchise tax and to corporations (both C and S corporations) and other entities subject to the corporate income tax are not the same as the limitations applicable to individuals and other entities; see See rule 701—40.65(422) for the section 179 limitations imposed on rules applicable to individuals and other noncorporate entities, and see rule 701—53.23(422) for the section 179 limitations imposed on rules applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax.
Section 179 Deduction Allowances Under Federal and Iowa Law |
||||
|
Federal |
Iowa |
||
Tax Year |
Dollar Limitation |
Reduction Limitation |
Dollar Limitation |
Reduction Limitation |
2003 |
$ 100,000 |
$ 400,000 |
$ 100,000 |
$ 400,000 |
2004 |
102,000 |
410,000 |
102,000 |
410,000 |
2005 |
105,000 |
420,000 |
105,000 |
420,000 |
2006 |
108,000 |
430,000 |
108,000 |
430,000 |
2007 |
125,000 |
500,000 |
125,000 |
500,000 |
2008 |
250,000 |
800,000 |
250,000 |
800,000 |
2009 |
250,000 |
800,000 |
133,000 |
530,000 |
2010 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2011 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2012 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2013 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2014 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2015 |
500,000 |
2,000,000 |
500,000 |
2,000,000 |
2016 |
500,000 |
2,010,000 |
25,000 |
200,000 |
2017 |
510,000 |
2,030,000 |
25,000 |
200,000 |
2018 |
1,000,000 |
2,500,000 |
25,000* 70,000 |
200,000 280,000 |
2019 |
Indexed amount unknown as of 8/2/18 1,020,000 |
Indexed amount unknown as of 8/2/18 2,550,000 |
100,000 |
400,000 |
2020 and later |
Iowa limitations are the same as federal |
|||
* These Iowa limitations for 2018 are applicable to financial institutions subject to the franchise tax, corporations (both C and S corporations), and entities subject to the corporate income tax. For Iowa limitations applicable to individuals and pass-through entities which are not financial institutions or corporations, see rule 701—40.65(422). |
d. Reduction. Both the federal and the Iowa deductions for section 179 assets are reduced (phased out dollar for dollar) for taxpayers whose total section 179 assets placed in service during a given year cost more than the amount specified (reduction limitation) for that year. Like the deduction limitation, the Iowa and federal reduction limitations are different for certain years. See paragraph 59.24(2)"c" for applicable limitations.
Example: Taxpayer, a financial institution doing business in Iowa, purchases $400,000 worth of qualifying section 179 assets and places all of them in service in 2018. Taxpayer claims a section 179 deduction of $400,000 for the full cost of the assets on the 2018 federal return. For financial institutions, the Iowa section 179 deduction for 2018 is phased out dollar for dollar by the amount of section 179 assets placed in service in excess of $200,000 $280,000. This means that for 2018, the Iowa deduction is fully phased out if the taxpayer placed in service section 179 assets that cost, in total, more than $225,000 $350,000. Since the cost of the qualifying assets in this example exceeds the Iowa section 179 phase-out limit, the taxpayer cannot claim any section 179 deduction on the Iowa return. However, the taxpayer may depreciate the entire cost of the assets for Iowa purposes.
e. Amounts in excess of the Iowa limits.
(1)Recovering the excess. Due to the differences between the Iowa and federal limitations for certain years, taxpayers may have a federal section 179 deduction that exceeds the amount allowed for Iowa purposes. This excess amount is handled in different ways depending on the source of the deduction.
1.Assets placed in service by the taxpayer or entity reporting the deduction. The cost of any section 179 assets placed in service by the taxpayer in excess of the Iowa limitation for a given year may be recovered through regular depreciation under Section 168 of the Internal Revenue Code, without regard to bonus depreciation under Section 168(k). The Iowa section 179 and depreciation deductions and any basis adjustments resulting from the difference in timing of the recovery between Iowa and federal law are calculated and tracked on forms made available on the department's website.
Example: Taxpayer, a financial institution doing business in Iowa, purchases a $100,000 piece of equipment and places it in service in 2018. Taxpayer claims a section 179 deduction of $100,000 for the full cost of the equipment on the 2018 federal return. Taxpayer is also required to claim a section 179 deduction of $25,000 $70,000 on the 2018 Iowa return (the full amount of the federal deduction up to the Iowa limit for financial institutions for 2018). The taxpayer can depreciate the remaining $75,000 $30,000 cost of the equipment for Iowa purposes.
2.Special election for assets placed in service by a pass-through entity when the section 179 deduction is claimed by an owner of that pass-through. See subrule 59.24(3) for information on a special election available to certain owners of pass-through entities related to any section 179 deductions passed through from a partnership or other entity that, in the aggregate, exceed the Iowa limitations.
(2)Special information for pass-throughs. In the case of pass-through entities, section 179 limitations apply at both the entity level and the owner level. Pass-through entities that are required to file an Iowa return and that actually place section 179 assets in service should follow 59.24(2)"e"(1)"1" to account for any assets for which the total federal section 179 deductions for a given year exceeded the Iowa limitation. Owners of pass-throughs receiving section 179 deductions from one or more pass-throughs that, in the aggregate, exceed the Iowa limitations should follow 59.24(2)"e"(1)"2."
Example: Bank A (a financial institution doing business exclusively in Iowa) owns 50 percent interests in each of three partnerships: C, D, and E. Partnership C, which also does business exclusively in Iowa, places $200,000 worth of section 179 assets in service during tax year 2019 and claims a federal section 179 deduction for the full cost of the assets. Because C is required to file an Iowa partnership return, C is subject to the Iowa section 179 limitations for 2019 and must adjust its Iowa section 179 deduction as provided in 40.65(2)"e"(1)"1." C passes through 50 percent of its section 179 deduction ($100,000 for federal purposes, $50,000 for Iowa purposes) to Bank A. Bank A also receives $50,000 each in section 179 deductions from D and E, for a total of $150,000 in section 179 deductions (for Iowa purposes) in 2019. Bank A is subject to the $100,000 Iowa section 179 deduction limitation for 2019, but because Bank A received total section 179 deductions from one or more pass-throughs in excess of the 2019 Iowa limitation, Bank A is eligible for the special election referenced in 59.24(2)"e"(1)"2."
f. Income limitation. The Iowa section 179 deduction for any given year is limited to the taxpayer's income from active conduct in a trade or business in the same manner that the section 179 deduction is limited for federal purposes. If an allowable Iowa section 179 deduction exceeds the taxpayer's business income for a given year, any excess allowable Iowa section 179 deduction may be carried forward as described in paragraph 59.24(2)"g."
g. Carryforward. This paragraph applies only to amounts that do not exceed the Iowa section 179 deduction limitations for a given year but do exceed the taxpayer's business income for that year. As with the federal deduction, allowable Iowa section 179 deductions claimed in a given year that exceed a taxpayer's business income may be carried forward and claimed in future years. This carryforward, if any, is calculated using only amounts up to the Iowa limit. Any federal section 179 deduction the taxpayer claimed in excess of the Iowa limit is not an Iowa section 179 deduction and therefore is not eligible for the carryforward described in this paragraph. Such amounts must instead be recovered as described in paragraph 59.24(2)"e," or in subrule 59.24(3) for taxpayers receiving the deduction from one or more pass-through entities and making the special election as described in that subrule.
h. Difference in basis. Iowa adjustments for differences between the Iowa and federal section 179 deduction limitations may cause the taxpayer to have a different basis in the same asset for Iowa and federal purposes. Taxpayers are required to use forms made available on the department's website to calculate and track these differences.
59.24(3) Section 179 deduction received from a pass-through entity. In some cases, a financial institution that receives income from one or more pass-through entities may receive a section 179 deduction in excess of the Iowa deduction limitation listed in paragraph 59.24(2)"c" for a given year. The financial institution may be eligible for a special election with regard to that excess section 179 deduction, as described in this subrule.
a. Tax years beginning before January 1, 2019 2018. For tax years beginning before January 1, 2019 2018, the amount of any section 179 deduction received by a financial institution subject to the franchise tax in excess of the Iowa deduction limitation for that year is not eligible for the special election.
b. Special election available for tax year 2019 years 2018 and 2019. For tax years beginning on or after January 1, 2019 2018, but before January 1, 2020, a financial institution subject to the franchise tax that receives a section 179 deduction from one or more pass-through entities in excess of the Iowa deduction limitation for that tax year may elect to deduct the excess in future years, as described in this subrule. See rule 701—40.65(422) for special rules applicable to individuals and other noncorporate entities, and see rule 701—53.23(422) for special rules applicable to corporations (both C and S corporations) and other entities subject to the corporate income tax.
(1)This special election applies only to section 179 deductions passed through to the financial institution by one or more other entities.
(2)If the total Iowa section 179 deduction passed through to the financial institution exceeds the federal section 179 deduction limitation for that year, the financial institution may only use the amount up to the federal limitation when calculating the deduction under this election. Any amount in excess of the federal limitation shall not be deducted for Iowa purposes.
c. to g. No change.
This rule is intended to implement Iowa Code section 422.35 as amended by 2018 Iowa Acts, Senate File 2417 2019 Iowa Acts, Senate File 220.
[Filed 5/29/19, effective 7/24/19]
[Published 6/19/19]
Editor's Note: For replacement pages for IAC, see IAC Supplement 6/19/19.
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View the Iowa Administrative Bulletin for 6/19/2019.
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Rule 701-40.65 Rule 701-53.23 Rule 701-59.24The following Iowa code references were added to this document. You may click a reference to view related notices.
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Amount of the Iowa deduction Amounts in excess of the Iowa limits Basis Calculating the special election Carryforward Claiming the deduction Difference in basis Differences in basis In general Income limitation Later tax years Qualifying for the deduction Reduction Section 179 assets of a financial institution Section 179 assets of an individual or entity Section 179 deduction received from a pass-through entity Section 179 expensing Special election available for tax year 2019 Special election available for tax years 2018 and 2019 Special election deduction Tax years beginning before January 1, 2018 Tax years beginning before January 1, 2019 Timing and requirement to follow federal election© 2024; State of Iowa | Privacy Policy