LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 7053 NOTE PREPARED: Jan 1, 2025
BILL NUMBER: SB 357 BILL AMENDED:
SUBJECT: Accelerated Depreciation.
FIRST AUTHOR: Sen. Rogers BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED: X GENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: The bill couples Indiana depreciation provisions with federal depreciation
provisions under Section 179 of the Internal Revenue Code (Section 179). It increases the Section 179
threshold from $25,000 to $100,000 for Indiana adjusted gross income purposes. It makes technical changes.
Effective Date: January 1, 2025 (retroactive).
Explanation of State Expenditures: Department of State Revenue (DOR): The DOR will incur additional
expenses to create forms, instructions, and computer programs based on the provisions in the bill. The DOR's
current level of resources should be sufficient to implement these changes.
Explanation of State Revenues: Eliminating the adjustments for the federal Section 179 Expense Deduction
will impact state taxable income for certain individuals, corporations, and financial institutions and lead to
a decrease in state General Fund revenue. The bill eliminates the adjustments beginning on January 1, 2025.
It also increases the threshold before an addback is required for property that was placed in service before
2025. The revenue loss will likely begin in FY 2025 as individuals and corporations with liability periods
ending in the first half of CY 2025 file their returns and other taxpayers file estimated payments, but the full
revenue impact will begin in FY 2026.
The impact of fully coupling with Section 179 is estimated to be a reduction of income tax revenues
deposited in the state General Fund by about $48 M to $59 M in FY 2026 and $33 M to $40 M in FY 2027.
Since increasing the 179 Expense Deduction allows a larger deduction in the initial years of the investment,
it would be offset by smaller deductions over the years using other depreciation methods available for
Indiana state tax purposes. The annual fiscal impact will continue to decrease in future years, and the long
term average annual impact is estimated to be significantly lower.
Federal bonus depreciation is phasing out over the next few years, and some small businesses may be able
to replace some of the expedited depreciation benefit by using the 179 Expense Deduction. The deduction
limitations and purchase rules for the 179 Expense Deduction may limit the substitution. It is estimated that
there will be an increase in the use of the 179 Expense Deduction in the coming biennium.
SB 357 1 The revenue loss associated with the bill was estimated using a combination of data from the DOR, the
Internal Revenue Service, and the Joint Committee on Taxation. In tax year 2023, about 1,000 corporate
taxpayers and about 19,000 individual taxpayers made this adjustment.
Section 179 Expense Deduction: The federal Section 179 Expense Deduction allows businesses to deduct
the full purchase price of qualifying equipment acquired and put into service during the same taxable year.
The equipment purchased, financed, or leased must be within the specified dollar limits set under Section
179. The total amount of qualified expenses allowable under Section 179 is $1.2 M for 2024. If the cost of
all qualifying Section 179 property placed in service in a year is more than a set threshold, $3.1 M for 2024,
the taxpayer must reduce the dollar limit by the amount of cost over the threshold. Indiana follows the
threshold for phase-out under IRC Section 179(b)(2). However, Indiana has a cap on the amount of Indiana
Section 179 Allowance that can be claimed during the first year. Indiana law allows a Section 179 Expense
Deduction using a ceiling of no more than $25,000. It requires Indiana taxpayers to add back the federal
deduction claimed above $25,000. This bill removes the addback requirement starting in tax year 2025 and
increases the addback threshold to $100,000 for Section 179 property put in service before 2025.
Starting January 1, 2018, a portion of the Federal Section 179 Allowance is fully allowable for Indiana tax
purposes. An exception is applied to the property that would have been eligible for tax deferral under IRC
Section 1031 prior to the 2017 Tax Cuts and Jobs Act but is subject to tax after passage of the 2017 Tax Cuts
and Jobs Act. The additional portion of Federal Section 179 Allowance that is allowable is equal to the lesser
of the Section 1031 Income or the Federal Section 179 Allowance claimed with regard to such property.
Bonus Depreciation: Although the bill makes no changes to the treatment of bonus depreciation in Indiana,
the phase out of bonus depreciation at the federal level is increasing the use of the Section 179 Expense
Deduction by taxpayers. Federal bonus depreciation allows a business owner to deduct a substantial amount
of cost for employing a new asset in the first year instead of depreciating the cost over several years.
The first-year bonus depreciation deduction amounts are:
(1) 100% for property placed in service before January 1, 2023.
(2) 80% for property placed in service in calendar year 2023.
(3) 60% for property placed in service in calendar year 2024.
(4) 40% for property placed in service in calendar year 2025.
(5) 20% for property placed in service in calendar year 2026.
Indiana disallows bonus depreciation and requires an addback of the federal deduction. The taxpayer
calculates the net income (or loss) that would have been included in federal adjusted gross income had the
bonus depreciation method not been used. The addback is a positive amount in the first year when the
property is placed in service. This increases the taxpayer’s taxable income. Effective for taxable years 2018
and later, a portion of bonus depreciation is allowable for Indiana purposes. Since the phase out of bonus
depreciation is ongoing until it is totally disallowed in 2027, the use of the 179 Expense Deduction will
continue to increase. This could result in additional revenue loss from increasing the threshold for the Section
179 Expense addback.
Explanation of Local Expenditures:
Explanation of Local Revenues: Eliminating the adjustments for the federal Section 179 Expense
Deduction will decrease taxable income. Counties imposing Local Income Taxes (LIT) may experience
revenue loss. The statewide revenue loss is estimated to be between $22 M and $27 M in FY 2026 and $15
SB 357 2 M to $19 M in FY 2027. The fiscal impact will continue to decrease in future years.
State Agencies Affected: Department of State Revenue.
Local Agencies Affected: All local units.
Information Sources: Indiana Department of Revenue, Information Bulletin # 118,
https://www.in.gov/dor/files/reference/ib118.pdf ;
The Joint Committee on Taxation, Estimates of Revenue Impact, https://www.jct.gov/publications/ ;
OFMA Income Tax Database.
Fiscal Analyst: Randhir Jha, 317-232-9556.
SB 357 3