Will Ohio’s Tax Code Match Federal Depreciation Treatment?

Joe Popp | February 4th, 2011

If your business files Ohio taxes, you’ll soon receive similar tax breaks to the recent federal tax code, according to Ohio Tax Commissioner, Richard Levin.

Ohio’s tax code is periodically synched with the federal tax code, which changed with the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. However, Congress made its tax code decisions in December, after Ohio’s year-end synchronizing process.

Commissioner Levin said that Ohio’s Republican governor and House of Representatives will correct the differences through new state tax legislation soon.

One of the biggest tax benefits your business will see is 100 percent bonus appreciation on assets you purchased after Sept. 8, 2010. Ohio’s current tax code allows for 50 percent depreciation. The state requires you to take this amount over six years, disagreeing with the more liberal asset expensing contained in the Internal Revenue Code.

Based on current Ohio tax law, taxpayers would lose the other 50 percent of the depreciation that they took on their federal return. This means both the 5/6 of the first 50 percent and all of the second 50 percent of the asset’s cost would be added back to the Ohio return as income.

The modification Levin promises will allow taxpayers to deduct 100 percent of the asset costs, but they will still be subject to the 5/6 add-back provision.

For example, under the current state law, if you purchased a $100,000 asset and claimed 100 percent bonus depreciation on your federal return, you would have to add $91,667 to your state income (5/6 of $50,000 is $41,667 and then the add back of the other 50 percent, or $50,000). Once the law changes, you would have to add back only $83,333 (or 5/6 of $100,000) to your state return. It’s a fairly technical change, but it’s easy to overlook and can create real savings on your company’s 2010 return.

The following types of assets qualify for federal bonus depreciation:

  • Assets with depreciably lives of 20 years or less such as automobiles, office equipment, computers, certain manufacturing equipment and certain structures
  • Water utility property
  • Certain computer software
  • Qualified leasehold improvement property

Be sure that your tax professional considers this coming change in Ohio’s tax treatment. Although you won’t want to delay preparation of your 2010 taxes, your tax preparer can delay filing your Ohio return until the corrected tax code is finalized. You’ll want to ensure that your tax return has been filed correctly to receive maximum benefit.

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