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AN ACT relating to depreciation. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
ď˘Section 1. KRS 141.0101 is amended to read as follows: 3
(1) (a) The provisions of subsections (2) to (11) of this section shall apply to taxable 4
years beginning before January 1, 1994. 5
(b) The provisions of subsections (12) to (15) of this section shall apply to taxable 6
years beginning after December 31, 1993. 7
(c) The provisions of subsection (16) of this section apply to property placed in 8
service after September 10, 2001. 9
(2) For property placed in service prior to January 1, 1990, in lieu of the depreciation 10
and expense deductions allowed under Internal Revenue Code Sections 168 and 11
179, a deduction for a reasonable allowance for depreciation, exhaustion, wear and 12
tear, and obsolescence of property used in a trade or business shall be allowed and 13
computed as set out in subsections (3) to (11) of this section. For property placed in 14
service after December 31, 1989, the depreciation and expense deductions allowed 15
under Sections 168 and 179 of the Internal Revenue Code shall be allowed. 16
(3) Effective August 1, 1985, "reasonable allowance" as used in subsection (2) of this 17
section shall mean depreciation computed in accordance with Section 167 of the 18
Internal Revenue Code and related regulations in effect on December 31, 1980, for 19
all property placed in service on or after January 1, 1981, except as provided in 20
subsections (6) to (8) of this section. 21
(4) Depreciation of property placed in service prior to January 1, 1981, shall be 22
computed under Section 167 of the Internal Revenue Code, and the method elected 23
thereunder at the time the property was first placed in service or as changed with 24
the approval of the Commissioner of Internal Revenue Service or as required by 25
changes in federal regulations. 26
(5) Taxpayers other than corporations shall be allowed to deduct as depreciation on 27 UNOFFICIAL COPY 23 RS BR 828
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recovery property placed in service before August 1, 1985, an amount calculated 1
under Section 168 of the Internal Revenue Code subject to the provisions of 2
subsections (6) and (8) of this section. Corporations with a taxable year beginning 3
on or after July 1, 1984, and before August 1, 1985, shall calculate a deduction for 4
depreciation on recovery property placed in service prior to August 1, 1985, using 5
either of the following alternative methods: 6
(a) Dividing the total of the deductions allowed under Internal Revenue Code 7
Section 168 by one and four tenths (1.4); and 8
(b) Calculating the deduction that would be allowed or allowable under the 9
provisions of Section 167 of the Internal Revenue Code. 10
(6) Recovery property placed in service on or after January 1, 1981, and before August 11
1, 1985, and subject to transition under subsection (8) of this section, shall be 12
subject to depreciation under Section 167 of the Internal Revenue Code, restricted 13
to the straight line method therein provided over the remaining useful life of such 14
assets. 15
(7) Depreciation of property placed in service on or after August 1, 1985, shall be 16
computed under Section 167 of the Internal Revenue Code. 17
(8) Transition from Section 168 of the Internal Revenue Code, Accelerated Cost 18
Recovery System (ACRS) depreciation, to the depreciation allowed or allowable 19
under this section shall be reported in the first taxable year beginning on or after 20
August 1, 1985. To implement the transition, the following adjustments shall be 21
made: 22
(a) Taxpayers other than corporations shall use the adjusted Kentucky basis for 23
property placed in service on or after January 1, 1981. "Adjusted Kentucky 24
basis" means the basis used for determining depreciation under Section 168 of 25
the Internal Revenue Code less the allowed or allowable depreciation and 26
adjustment for election to expense an asset (Section 179 of the Internal 27 UNOFFICIAL COPY 23 RS BR 828
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Revenue Code);and 1
(b) Corporations shall adjust the federal unadjusted basis by increasing such basis 2
by the ACRS depreciation not allowed as a deduction in determining 3
Kentucky net income for tax years beginning after June 30, 1984, less allowed 4
or allowable ACRS depreciation for federal income tax purposes. 5
Corporations will not be permitted to adjust the basis by the ACRS 6
depreciation not allowed for Kentucky income tax purposes in tax years 7
beginning on or before June 30, 1984. 8
(9) A taxpayer may elect to treat the cost of property placed in service on or before July 9
31, 1985, as an expense as provided in Section 179 of the Internal Revenue Code in 10
effect on December 31, 1981, except that the aggregate cost which may be 11
expensed for corporations shall not exceed five thousand dollars ($5,000). A 12
taxpayer may elect to treat the cost of property placed in service on or after August 13
1, 1985, as an expense as provided in Section 179 of the Internal Revenue Code in 14
effect on December 31, 1980. Computations, limitations, definitions, exceptions, 15
and other provisions of Section 179 of the Internal Revenue Code and related 16
regulations shall be construed to govern the computation of the allowable 17
deduction. 18
(10) Upon the sale, exchange, or disposition of any depreciable property placed in 19
service on or after January 1, 1981, capital gains or losses and the amount of 20
ordinary income determined under the provisions of the Internal Revenue Code 21
shall be computed for Kentucky income tax purposes as follows: 22
(a) Compute the Kentucky unadjusted basis which is the cost of the asset reduced 23
by any basis adjustment made by the taxpayer under Section 48(q)(1) of the 24
Internal Revenue Code and any expense allowed and utilized under Section 25
179 of the Internal Revenue Code (First Year Expense) in determining 26
Kentucky net income in prior years;[, and] 27 UNOFFICIAL COPY 23 RS BR 828
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(b) Compute the adjusted basis by subtracting the depreciation allowed or 1
allowable for Kentucky income tax purposes from the unadjusted basis, 2
except corporations will not be permitted to adjust the basis of assets by the 3
ACRS depreciation not allowed for Kentucky income tax purposes in the tax 4
years beginning on or before June 30, 1984;[, and] 5
(c) Compute the gain or loss by subtracting the adjusted basis from the value 6
received from the disposition of the depreciable property;[, and] 7
(d) Compute the recapture of depreciation required under Sections 1245 through 8
1256 of the Internal Revenue Code and related regulations;[, and] 9
(e) Unless otherwise provided in this subsection, the provisions of the Internal 10
Revenue Code and related regulations governing the determination of capital 11
gains or losses shall apply for Kentucky income tax purposes. 12
(11) Unless otherwise provided by this chapter, the basis of property placed in service 13
prior to January 1, 1990, for purposes of Kentucky income tax shall be the basis, 14
adjusted or unadjusted, required to be used under Section 167 of the Internal 15
Revenue Code in effect on December 31, 1980. 16
(12) As used in this subsection to subsection (14) of this section: 17
(a) "Transition property" means any property placed in service before the first 18
day of the first taxable year beginning after December 31, 1993, and owned 19
by the taxpayer on the first day of the first taxable year beginning after 20
December 31, 1993;[.] 21
(b) "Adjusted Kentucky basis" means the amount computed in accordance with 22
the provisions of paragraph (b) of subsection (10) of this section for transition 23
property;[.] 24
(c) "Adjusted federal basis" means the original cost, or, in the case of Section 338 25
property, the adjusted grossed-up basis of transition property less: 26
1. Any basis adjustments required by the Internal Revenue Code for 27 UNOFFICIAL COPY 23 RS BR 828
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credits; and 1
2. The total accumulated depreciation and election to expense deductions 2
allowed or allowable for federal income tax purposes;[.] 3
(d) "Section 338 property" means property to which an adjusted grossed-up basis 4
has been allocated pursuant to a valid election made by a purchasing 5
corporation under the provisions of Section 338 of the Internal Revenue 6
Code; and[.] 7
(e) "Transition amount" means the net difference between the adjusted Kentucky 8
basis and the adjusted federal basis of all transition property determined as of 9
the first day of the first taxable year beginning after December 31, 1993. 10
(13) For taxable years beginning after December 31, 1993, the amounts of depreciation 11
and election to expense deductions, allowed or allowable, the basis of assets, 12
adjusted or unadjusted, and the gain or loss from the sale or other disposition of 13
assets shall be the same for Kentucky income tax purposes as determined under 14
Chapter 1 of the Internal Revenue Code. 15
(14) For taxable years beginning after December 31, 1993, the transition amount 16
computed in accordance with the provisions of paragraph (e) of subsection (12) of 17
this section shall be reported by the taxpayer as follows: 18
(a) In the first taxable year beginning after December 31, 1993, and the eleven 19
(11) succeeding taxable years, the taxpayer shall include in gross income one-20
twelfth (1/12) of the transition amount if: 21
1. The adjusted federal basis of transition property exceeds the adjusted 22
Kentucky basis of transition property; 23
2. The transition amount exceeds five million dollars ($5,000,000); 24
3. The transition amount includes property for which an election was made 25
under Section 338 of the Internal Revenue Code; and 26
4. The taxpayer elects the provisions of this paragraph with the filing of an 27 UNOFFICIAL COPY 23 RS BR 828
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amended income tax return for the first taxable year beginning after 1
December 31, 1993;[.] 2
(b) In the first taxable year beginning after December 31, 1993 and the three (3) 3
succeeding taxable years, if the transition amount exceeds one hundred 4
thousand dollars ($100,000), or if the transition amount does not exceed one 5
hundred thousand dollars ($100,000) and the taxpayer elects the provision of 6
this paragraph with the filing of the income tax return for the first taxable year 7
beginning after December 31, 1993, the taxpayer shall: 8
1. Deduct from gross income twenty-five percent (25%) of the transition 9
amount if the adjusted Kentucky basis of transition property exceeds the 10
adjusted federal basis of transition property; or 11
2. Add to gross income twenty-five percent (25%) of the transition amount 12
if the adjusted federal basis of transition property exceeds the adjusted 13
Kentucky basis of transition property; and[.] 14
(c) In the first taxable year beginning after December 31, 1993, if the transition 15
amount does not exceed one hundred thousand dollars ($100,000) and the 16
taxpayer does not elect the provisions of paragraph (b) of this subsection, the 17
taxpayer shall: 18
1. Deduct from gross income the total transition amount if the adjusted 19
Kentucky basis of transition property exceeds the adjusted federal basis 20
of transition property; or 21
2. Add to gross income the total transition amount if the adjusted federal 22
basis of transition property exceeds the adjusted Kentucky basis of 23
transition property. 24
(15) Notwithstanding any other provision of this section to the contrary, any qualified 25
farming operation, as defined in KRS 141.410, shall be allowed to compute the 26
depreciation deduction for new buildings and equipment purchased to enable 27 UNOFFICIAL COPY 23 RS BR 828
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participation in a networking project, as defined in KRS 141.410, on an accelerated 1
basis at two (2) times the rate that would otherwise be permitted under the 2
provisions of this section. The accumulated depreciation allowed under this 3
subsection shall not exceed the taxpayer's basis in such property. 4
(16) (a) For property placed in service after September 10, 2001, only the depreciation 5
deduction allowed under Section 168 of the Internal Revenue Code in effect 6
on December 31, 2001, exclusive of any amendments made subsequent to that 7
date, shall be allowed. 8
(b) For property placed in service after September 10, 2001, but prior to January 9
1, 2020, only the expense deduction allowed under Section 179 of the Internal 10
Revenue Code in effect on December 31, 2001, exclusive of any amendments 11
made subsequent to that date, shall be allowed. 12
(c) For property placed in service on or after January 1, 2020, but prior to 13
January 1, 2023, only the expense deduction allowed under Section 179 of 14
the Internal Revenue Code in effect on December 31, 2003, exclusive of any 15
amendments made subsequent to that date, shall be allowed, except that the 16
phase-out provisions of Section 179 of the Internal Revenue Code, limiting 17
the qualifying investment in property, shall not apply. 18
(d) For property placed in service on or after January 1, 2023, only the expense 19
deduction allowed under Section 179 of the Internal Revenue Code in effect 20
on December 31, 2022, exclusive of any amendments made subsequent to 21
that date, shall be allowed, except that the phase-out provisions of Section 22
179 of the Internal Revenue Code, limiting the qualifying investment in 23
property, shall not apply. 24