Fixed Assets & State Modifications • Audit-Ready Technical Blueprint
IRC §168(k) Bonus Depreciation Phase-Down & State Addback Modification Guide
Key Takeaway: Over 30 States Decouple From Federal IRC §168(k) Bonus Depreciation
The Industry Bottleneck
As federal IRC §168(k) bonus depreciation phases down, corporate tax teams must track two separate depreciation schedules: Federal MACRS + Bonus Depreciation (creating a Deferred Tax Liability on WP 3.0) and State Straight-Line / Modified MACRS addbacks across decoupling states.
Technical Implementation & Workpaper Rules
- Federal DTL Creation: Accelerated tax depreciation exceeds GAAP straight-line book depreciation in early years, creating a negative M-1 adjustment and a Deferred Tax Liability (DTL).
- State Addback Modifications: States like California, New York, Illinois, Massachusetts, Pennsylvania, New Jersey, Georgia, and Florida disallow federal §168(k) bonus depreciation—requiring an explicit state addition modification on WP 2.0.
- Rolling Conformity Exceptions: States like Colorado conform 100% to federal bonus depreciation, requiring zero state fixed-asset modification.
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