NCACPA received the following Important Notice update from the NC Department of Revenue a short time ago.
The Department is updating its Important Notice dated July 20, 2020, to clarify the treatment of qualified improvement property bonus depreciation when calculating a taxpayer’s excess business loss.
If you remember, the CARES Act included a technical correction that assigned a 15-year recovery period to qualified improvement property (“QIP”) placed in service after 2017. As a result of this correction, most QIP placed in service after 2017 retroactively qualifies for the bonus depreciation deduction.
Session Law 2020-58 updated North Carolina’s reference to the Internal Revenue Code from January 1, 2019, to May 1, 2020. This update incorporates the CARES Act to the extent North Carolina follows the federal tax provisions and does not decouple from the changes. Because North Carolina previously decoupled from the federal bonus depreciation provisions, G.S. 105-153.6(a) requires an addition for the QIP bonus depreciation allowed under the CARES Act.
Importantly, QIP bonus deprecation may also create or increase a taxpayer’s excess business loss under Code § 461(l). The Department’s Important Notice is being updated to clarify that QIP bonus depreciation should not be included in the calculation of the taxpayer’s excess business loss addition to the extent the QIP bonus deprecation resulted in an addition to a taxpayer’s AGI pursuant to G.S. § 105-153.6(a).