SSB 1127 (LSB 1575XC (2) 90)

SENATE FILE _____ 

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON DAWSON)

A BILL FOR

An Act relating to decoupling federal additional first-year depreciation for Iowa tax purposes, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, Code 2023, is amended by adding the following new subsection:
   NEW SUBSECTION.  44.  For qualified property placed in service after December 31, 2022, a taxpayer may elect to subtract the additional first-year depreciation allowance authorized under section 168 of the Internal Revenue Code, in the taxable year in which the property is placed in service, subject to the following adjustments:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(k) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to the depreciation allowed on such property under section 168(k) of the Internal Revenue Code of 1986 as amended and in effect on December 31, 2022.
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraph “a” or “b” pursuant to rules adopted by the director.
    Sec. 2.  Section 422.35, Code 2023, is amended by adding the following new subsection:
   NEW SUBSECTION.  15.  For qualified property placed in service after December 31, 2022, a taxpayer may elect to subtract the additional first-year depreciation allowance authorized under section 168 of the Internal Revenue Code, in the taxable year in which the property is placed in service, subject to the following adjustments:
   a.  Add the total amount of depreciation taken on all property for which the election under section 168(k) of the Internal Revenue Code was made for the tax year.
   b.  Subtract an amount equal to the depreciation allowed on such property under section 168(k) of the Internal Revenue Code of 1986 as amended and in effect on December 31, 2022.
   c.  Any other adjustments to gains or losses to reflect the adjustments made in paragraph “a” or “b” pursuant to rules adopted by the director.
    Sec. 3.  EFFECTIVE DATE.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 4.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2022, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to decoupling for Iowa tax purposes with federal additional first-year depreciation changes under section 168(k) of the Internal Revenue Code (bonus depreciation).
   BACKGROUND. The Tax Cut and Jobs Act of 2017 (TCJA), in part, made substantial changes to bonus depreciation by increasing the deduction amount from 50 percent of qualified property to 100 percent of qualified property. Beginning with property placed in service after December 31, 2022, the federal bonus depreciation deduction amount begins to phase down by 20 percent per year until property placed in service after December 31, 2026, is no longer eligible for bonus depreciation.
   BILL CHANGES. Under current law, Iowa completely coupled with federal tax law for tax years beginning on or after January 1, 2020. The bill decouples Iowa for purposes of federal bonus depreciation, and permits a taxpayer for Iowa individual and corporate income tax purposes to continue to utilize bonus depreciation by allowing a taxpayer to deduct 100 percent of qualified property placed in service after December 31, 2022.
   By decoupling from federal bonus depreciation, the bill also preserves any other changes made to federal bonus depreciation under the TCJA for Iowa tax purposes including expanding the types of property that are considered “qualified property”.
   The bill takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2022.