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IOWA BONUS DEPRECIATION FIX GOES TO HOUSE FLOOR

January 20, 2005

The bill that would permit Iowa taxpayers to "catch up" their 2003 50% bonus depreciation and added Section 179 deduction has cleared its first hurdle. The bill, HF 23, cleared the House Ways and Means Committee Tuesday, according to an e-mail newsletter from House Speaker Christopher Rants.

In last September's special session, the liegislature permitted taxpayers who claimed bonus 50% depreciation on their 2003 returns to claim it for Iowa purposes. They also changed Iowa rules to conform to the federal $100,000 Sec. 179 deduction limt (it had been $25,000 for Iowa).

Unfortunately, the Department of Revenue decided that the only way to claim the extra deductions was to file amended returns. By the time Iowa allowed these deductions for 2003, almost all 2003 returns were already filed. For smaller taxpayers, or for S corporations and partnerships with many partners, the cost of amending returns makes the deduction too expensive to use.

HF 23 will allow taxpayers to "catch up" the deductions in 2004, instead of filing amended returns. The leadership is behind it, so we can hope it passes soon enough for taxpayers to use this filing season. The bill has yet to start its way through the Iowa Senate.

To see the entire text of Speaker Rants' e-mail, click "read more."

Text of email from Speaker Rants:

Dear Friend,

House Republicans are again rapidly advancing pro-business, pro-growth legislation, and we’re accomplishing this less than two weeks into session.

A little background: Last year, the House passed a comprehensive economic development bill that included a provision enabling Iowa businesses to reinvest in Iowa products and workers, known as Section 179 depreciation.

The law assists Iowa employers by allowing them to couple with the federal tax code in accelerating the write-off of certain depreciable property. As a result, millions of dollars are freed from the government reins that control them and will be plowed back in to job creation and business expansion efforts.

This past Tuesday, the House Ways and Means Committee unanimously approved a bill that allows taxpayers who elected to take advantage of this 50% bonus depreciation and Section 179 expensing allowance to file for this tax incentive in the following year, rather than spend additional money to file an amended tax return.

The change was needed because when the Legislature approved this bill during the September 7 special session, most of the 2003 tax returns had already been filed. Businesses notified us of the problem, and House Republicans quickly sprang into action to get it fixed. It was never the intent that the taxpayer would suffer time and expense due to the changes in the depreciation provisions.

However, the Department of Revenue determined that these changes would require Iowans to file amended returns to take the additional 2003 depreciation and the Section 179 allowance. Because amended returns were required, many taxpayers found the expense of filing amended returns will offset any gain. Due to the department's ruling, clean-up legislation was needed to avoid this unintended outcome.

Allowing taxpayers a “catch-up” on the 2004 Iowa return would resolve any issue to the taxpayer for the cost of this legislative change.

Because the 50% bonus depreciation and increased Section 179 deduction are meant as an economic growth tool for businesses in Iowa, there was an increased need for prompt legislative action for Iowa taxpayers.

We got the job done, and the bill will be eligible for full floor debate during the week of January 24.

Christopher

Christopher@Rants.us

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