August 10, 2018 IRS and Treasury issue Section 168(k) proposed regulations on 100% bonus depreciation The IRS and Treasury have released proposed regulations (REG-104397-18) on the allowance for the additional first-year depreciation deduction under Section 168(k), as amended by the Tax Cuts and Jobs Act (TCJA), for qualified property acquired and placed in service after September 27, 2017 (Proposed Regulations). The Proposed Regulations cover a number of issues under Section 168(k), including the types of property that qualify, the application of the acquisition and placed-in-service requirements, the time and manner for making certain Section 168(k) elections, and the application of Section 168(k) to certain partnership-related transactions. Background The TCJA made several amendments to the allowance for the additional first-year depreciation deduction in Section 168(k) (bonus depreciation). Such amendments are discussed in detail in Tax Alert 2017-2131. A summary of the significant amendments made by the TCJA is provided below for reference: — Extended bonus depreciation through 2026 (2027 for longer production period property and certain aircraft). — Increased bonus depreciation from 50% to 100% with respect to qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft). Bonus depreciation phases down to 80% for qualified property placed in service before January 1, 2024; 60% for qualified property placed in service before January 1, 2025; 40% for qualified property placed in service before January 1, 2026; and 20% for qualified property placed in service before January 1, 2027 (with an additional year to place property in service available for longer production period property and certain aircraft associated with each phase-down percentage). The changes also apply to certain plants planted or grafted after September 27, 2017, and before January 1, 2027, with similar bonus percentages in place. — Removed qualified improvement property from the definition of qualified property (albeit unintentionally), but added qualified film or television production (as defined in Section 181(d)) and qualified live theatrical production (as defined in Section 181(e)). — Expanded the definition of qualified property to include both new and used property. Prior to the TCJA amendments, the taxpayer had to be the original user of the property. As amended, qualified property includes both original use property as well as certain used property that satisfies specific requirements. — Added property used in certain regulated utility trades or businesses and property used in certain trades or business with floor plan financing interest to the list of property that is specifically excluded from the definition of qualified property (which also includes property required to be depreciated under the alternative depreciation system). — Added a new election under Section 168(k)(10), which allows taxpayers to elect to claim 50% bonus depreciation in lieu of 100% bonus depreciation for property acquired after September 27, 2017, and placed in service in the first tax year ending after September 27, 2017. — Repealed Section 168(k)(4) (election to accelerate alternative minimum tax (AMT) credits in lieu of claiming bonus depreciation). Proposed regulations To address the substantial changes to Section 168(k), the Proposed Regulations add a new regulatory section, Reg. Section 1.168(k)-2, for property acquired and placed in service after September 27, 2017. Reg. Section 1.168(k)-1 generally remains applicable for property acquired prior to September 28, 2017. Generally, the Proposed Regulations provide guidance on the four requirements to claim bonus depreciation: (1) the depreciable property must be of a specified type; (2) the original use of the depreciable property must commence with the taxpayer or used depreciable property must meet certain acquisition requirements; (3) the depreciable property must be placed in service by the taxpayer within a specified time period; and (4) the depreciable property must be acquired by the taxpayer after September 27, 2017. The Proposed Regulations also provide special rules as well as guidance on certain elections under Section 168(k). The Proposed Regulations provide welcome clarification of certain provisions contained in the new law; the highlights of this guidance are discussed below. Please note that many of the proposed rules in Reg. Section 1.168(k)-2 are consistent with the longstanding rules provided in Reg. Section 1.168(k)-1 and, as a result, may not be specifically addressed in this Tax Alert. Property of a specified type Qualified improvement property (QIP) Notably, the Proposed Regulations do not fix the TCJA drafting error that left certain property meeting the QIP definition ineligible for bonus depreciation. However, the Proposed Regulations do confirm that QIP acquired after September 27, 2017, and placed in service before January 1, 2018, is eligible for 100% bonus depreciation. Although it is not specifically mentioned in the preamble to the Proposed Regulations, the IRS and Treasury have previously stated they do not have the authority to fix the TCJA drafting error through regulations or other IRS guidance. Accordingly, unless and until a technical corrections bill is passed, QIP that is placed in service on or after January 1, 2018, will be subject to a 39-year recovery period and will not be eligible for bonus depreciation under Section 168(k), regardless of when it was acquired. As a reminder, the TCJA eliminated the qualified leasehold improvement property (QLIP), qualified restaurant property (QRP) and qualified retail improvement property (QRIP) asset classifications from Section 168 for property placed in service after December 31, 2017. Although it retained the definition of qualified improvement property, it specifically removed it from the list of qualified property and failed to provide it with a 15-year recovery period, thereby making it ineligible for bonus depreciation going forward. For a deeper dive into this drafting error, see Tax Alerts 2018-0012 and 2018-0394. The following is a chart that details the recovery period and bonus depreciation applicability to certain non-residential real property improvements based on when they were acquired and placed in service:
*Note — QLIP and QRIP, by definition, satisfy the QIP criteria because they are more restrictive. QRP may or may not satisfy the QIP criteria, depending on the taxpayer's facts. Certain exclusions for public utilities and taxpayers with floor plan financing Section 168(k)(9), as amended by the TCJA, provides that qualified property does not include property that is primarily used in a trade or business described in clause (iv) of Section 163(j)(7)(A) (i.e., certain regulated utility trades or businesses) and property used in a trade or business that has floor plan financing indebtedness, if the floor plan financing interest related to such indebtedness was taken into account under Section 163(j)(1)(C). Due to effective date differences between the TCJA amendments to Section 163(j) and Section 168(k), there was uncertainty as to when the above-referenced exclusions took effect. The Proposed Regulations clarify that such exclusions only apply to property that is acquired after September 27, 2017, and placed in service in a tax year that beings after December 31, 2017. Original use requirement or used property requirement As noted above, the TCJA expanded the prior law definition of qualified property to include both original use property and certain used property. The Proposed Regulations generally retain the original use rules in Reg. Section 1.168(k)-1(b)(3). However, because the TCJA removed the rules in Section 168(k) regarding sale-leaseback transactions, the Proposed Regulations do not retain the original use rules provided in Reg. Section 1.168(k)-1(b)(3)(iii)(A) and (C). As it pertains to used property, the Proposed Regulations clarify that used property will qualify for bonus depreciation to the extent the acquisition of the used property satisfies all the following requirements: — Such property was not used by the taxpayer or a predecessor at any time prior to such acquisition. — The acquisition of such property either meets the requirements of Section 179(d)(2)(A), (B), and (C) and Reg. Section 1.179-4(c)(1)(ii), (iii), and (iv) (i.e., property must not be acquired from a related party, another component member of a controlled group, or in a transaction in which the basis of the property in the hands of the acquirer is determined in whole or in part by reference to the basis in the hands of the person from whom acquired or under Section 1014)), OR meets the requirements of Reg. Section 1.179-4(c)(2) (i.e., property deemed to have been acquired by a new target corporation as result of a Section 338 election or, as amended by the Proposed Regulations, a Section 336(e) election). — The acquisition of such property meets the requirements of Section 179(d)(3) and Reg. Section 1.179-4(d) (i.e., if any portion of the taxpayer's basis in the acquired property is determined by reference to the basis of other property held at any time by the acquiring taxpayer, such portion is ineligible for bonus depreciation). Used property requirements — property not used by taxpayer/predecessor prior to acquisition Prior to the issuance of the Proposed Regulations, there were concerns that the requirement that property not be used by the taxpayer prior to acquisition would disfavor lessees that acquired property at the end of a lease. Fortunately, the Proposed Regulations provide that property is treated as used by the taxpayer (or its predecessor) prior to acquisition only if the taxpayer (or its predecessor) had a depreciable interest in the property at any time before the acquisition. Accordingly, a lessee who leases an asset and acquires such asset at the end of the lease term will not be treated as having used the asset prior to its acquisition for purposes of the above rules. The Proposed Regulations also clarify that a lessee's depreciable interest in the improvements it has made to leased property does not taint the overall bonus eligibility of the leased property (of which those improvements are a part) that is subsequently acquired. The Proposed Regulations also clarify how the prior use rule applies to fractional interests in depreciable property. Specifically, the Proposed Regulations distinguish between two different scenarios in which a taxpayer acquires an interest in a portion of property: (1) the taxpayer had previously acquired a depreciable interest in a portion of the property and subsequently acquires an additional depreciable interest in the same property; and (2) the taxpayer had previously acquired a depreciable interest in a portion of the property, sells all or a part of this portion, and then subsequently acquires a different portion of the same property. In the first scenario, the additional depreciable interest is not treated as having been previously used by the taxpayer for purposes of the used property requirements. In the second, however, the taxpayer will be treated as having previously used the property up to the amount of the portion in which it held a depreciable interest prior to the sale. Lastly, as it pertains to the prior use rule, the Proposed Regulations provide a special rule for members of a consolidated group. Specifically, the Proposed Regulations indicate that if a member of a consolidated group acquires depreciable property and the consolidated group previously had a depreciable interest in such property, such acquiring member will be treated as having a depreciable interest in the property prior to the acquisition. This anti-abuse rule prevents a member of a consolidated group from claiming bonus depreciation on an asset that it acquired from an unrelated party to the extent that unrelated party acquired such asset from another member of the consolidated group. The Proposed Regulations also include provisions that address the consolidated group prior use rule in situations in which acquisitions of depreciable property occur in connection with members leaving and joining a consolidated group. Used property requirements — special rules for a series of related transactions The Proposed Regulations provide a special rule that must be considered when evaluating whether each of the above referenced used property requirements is satisfied. Such rule states that in the case of a "series of related transactions": (1) the property is treated as directly transferred from the original transferor to the ultimate transferee; and (2) the relation between the original transferor and the ultimate transferee is tested immediately after the last transaction in the series. One example in the Proposed Regulations that illustrates this rule involves a father selling equipment to an unrelated party, who then sells equipment to the father's daughter. The example indicates that the transfer of the property will be considered to be a series of related transactions effectuating the sale of property from one related party to another, and will fail the used property acquisition requirement. As a result of this rule, taxpayers will need to carefully analyze transactions in which the depreciable property being acquired was, at some point, held by a related party. Used property requirements — application to partnership transactions Prior to the release of the Proposed Regulations, many taxpayers and practitioners questioned how the used property requirements would be applied to certain partnership transactions. The Proposed Regulations address and clarify many of these questions. Specifically, the Proposed Regulations provide that each of the following does not satisfy the used property requirements, precluding application of bonus depreciation: — Remedial allocations under Section 704(c) with respect to contributed property and with respect to property that has been revalued for Section 704(b) purposes (i.e., reverse Section 704(c) allocations) — Any portion of the basis of distributed property determined under Section 732 — Any increase to the basis of depreciable property under Section 734(b) However, the Proposed Regulations provide that a transaction giving rise to a Section 743(b) basis adjustment (e.g., the sale or exchange of a partnership interest) may satisfy the used property requirements in certain fact patterns. Specifically, for purposes of determining whether the used property requirements are satisfied, the Proposed Regulations apply an aggregate view of partnerships, treating each partner as having owned and used the partner's proportionate share of partnership property (e.g., a 40% partner is treated as having previously owned and used 40% of the partnership's depreciable property). In effect, the used property rules are applied at the partner level (i.e., as though the acquiring partner purchased a share of the partnership assets directly from the transferring partner). Accordingly, as it pertains to the requirement that the taxpayer not have used the property prior the acquisition, the acquiring partner will satisfy such requirement if that partner (or its predecessor) has not used the transferor partner's portion of the partnership property prior to the acquisition. Similarly, for purposes of determining whether the other used property requirements are satisfied (e.g., those referenced in Section 179(d)(2)(A), (B) and (C) and the regulations thereunder), the partner acquiring a partnership interest is treated as the person acquiring the property and the partner who is transferring the partnership interest is treated as the person from whom the property is acquired. The same approach applies where the transferee partner is an existing partner acquiring an additional partnership interest from another partner. Placed-in-service requirement Consistent with the relevant effective date section in the TCJA, the Proposed Regulations provide that qualified property must be placed in service by the taxpayer after September 27, 2017, and before January 1, 2027 (or in the case of longer production period property and certain aircraft, before January 1, 2028). The Proposed Regulations generally retain the existing placed-in-service date rules contained in Reg. Section 1.168(k)-1(b)(5). However, the sale-leaseback rules from Reg. Section 1.168(k)-1 were not retained, which is consistent with the TCJA's removal of the sale-leaseback rules from Section 168(k). The Proposed Regulations also include specific rules with respect to specified plants, qualified film or television productions and qualified live theatrical productions as follows: — In the case of a specified plant under Section 168(k)(5), the plant must either be planted before January 1, 2027, or grafted before January 1, 2027, to a plant that has already been planted. — A qualified film or television production is treated as placed in service at the time of initial release or broadcast. — A qualified live theatrical production is treated as placed in service at the time of the initial live staged performance, which is defined as the first commercial exhibition of the production to an audience. Acquisition date requirement Consistent with the relevant effective date section in the TCJA, the Proposed Regulations indicate that only property acquired after September 27, 2017, qualifies for 100% bonus depreciation (or the phased down rates in later years, as applicable). For purposes of determining when property is acquired, the relevant effective date section of the TCJA provides that property will not be treated as acquired any later than the date on which the taxpayer enters into a written binding contract to acquire such property. The TCJA language left many taxpayers and practitioners questioning how the written binding contract rule would apply (if at all) to property constructed, manufactured, or produced by the taxpayer and property constructed, manufactured, or produced by a third-party contractor on the taxpayer's behalf. Constructed property — use of a third-party contractor The Proposed Regulations clarify that property that is manufactured, constructed or produced for the taxpayer by another person under a written binding contract that is entered into prior to the manufacture, construction or production of the property is treated as acquired pursuant to a written binding contract. This is a complete departure from the rules under Reg. Section 1.168(k)-1(b)(4)(iii), which indicate that such property is self-constructed and not subject to the written binding contract rules (instead allowing taxpayers to treat such property as acquired when manufacture, construction or production begins). Accordingly, this means that a taxpayer that entered into a written binding contract with a third-party contractor prior to September 28, 2017, to construct property on its behalf will not be eligible to claim 100% bonus depreciation on such property, even if construction begins after September 27 (as such property will be subject to the Section 168(k) provisions in effect prior to the amendments made by the TCJA). Constructed property — taxpayer-constructed In contrast, for taxpayer-constructed property, the Proposed Regulations retain the self-constructed property rules of Reg. Section 1.168(k)-1(b)(4)(iii), which provide that property is acquired when the taxpayer begins manufacturing, constructing or producing the property, and further provides a safe harbor that permits a taxpayer to determine the acquisition date as the date on which more than 10% of the total cost of the property has been incurred. The Proposed Regulations also provide rules specific to components of self-constructed property (largely leveraging the component rules provided in Reg. Section 1.168(k)-1(b)(4)(iii)(C)). Acquired components. If a binding contract to acquire one or more components of a larger self-constructed property is entered into before September 28, 2017, the acquired component is not eligible for 100% bonus depreciation; however, such acquisition will not preclude the larger self-constructed property from satisfying the acquisition rules. However, if the manufacture, construction or production of the larger self-constructed property begins before September 28, 2017, the larger self-constructed property and any acquired components related to the larger self-constructed property do not qualify for 100% bonus depreciation, regardless of when the component is acquired. Self-constructed components. Similarly, if a taxpayer begins manufacturing, constructing or producing a component of a larger self-constructed property before September 28, 2017, this will not preclude the larger self-constructed property from satisfying the acquisition rules. However, if the manufacture, construction or production of the larger self-constructed property begins before September 28, 2017, the larger self-constructed property and any self-constructed components do not qualify for bonus depreciation, regardless of when the component is acquired. Written binding contract definition The Proposed Regulations retain the same binding contract definition that exists under Reg. Section 1.168(k)-1(b)(4)(ii). Additionally, the Proposed Regulations clarify that a letter of intent is not a binding contract. Acquisition dates for specific property The Proposed Regulations also include specific acquisition rules with respect to specified plants, qualified film or television productions and qualified live theatrical productions. — In the case of a specified plant under Section 168(k)(5), the plant must either be planted after September 27, 2017, or grafted after September 27, 2017 to a plant that has already been planted. — A qualified film or television production is treated as acquired on the date principal photography commences. — A qualified live theatrical production is treated as acquired on the date when all of the necessary elements for producing the live theatrical production are secured, which may include a script, financing, actors, set, scenic and costume designs, advertising agents, music and lighting. Section 168(k) elections Election out Section 168(k)(7), as amended by the TCJA, provides taxpayers with the ability to elect out of bonus depreciation. As expected, the Proposed Regulations clarify that a taxpayer may make an election not to deduct bonus depreciation for any class of property that is qualified property placed in service during the tax year in which the election is made. That is, the election is made at the asset class level and applies to all property that is in the same class of property and placed in service in the same year. The election must be made by the due date, including extensions, for the tax year in which the property is placed in service. For taxpayers filing a consolidated federal income tax return, this election is made on an asset class level for each member of the consolidated group by the common parent by attaching a statement to the timely filed return (including extensions) indicating the class of property for which the election is made. While the guidance retains the same classes of property that existed in prior regulations, it also adds a few new classes of property. Specifically, the Proposed Regulations indicate that a Section 743(b) basis adjustment is a separate class of property. Accordingly a partner can claim bonus depreciation on a Section 743(b) basis adjustment even when the partnership elected out of bonus depreciation for all classes of property to which the Section 743(b) basis adjustment relates (and vice versa). For example, if the Section 743(b) basis adjustment is allocated to five-year property, the partner can claim bonus depreciation on the Section 743(b) basis adjustment even if the partnership elects out of bonus depreciation for all five-year property. The Proposed Regulations also do not appear to require that a partner's election with respect to its Section 743(b) basis adjustment be the same as the partnership's election with respect to property of the same class directly held by the taxpayer. Further, the Proposed Regulations indicate that each separate production of qualified film or television is a class of property and each separate production of a qualified live theatrical production is a class of property. Election to apply 50% bonus depreciation Section 168(k)(10), as amended by the TCJA, provides taxpayers with an election to claim 50% bonus depreciation in lieu of 100% bonus depreciation for qualified property acquired after September 27, 2017, and placed in service during the taxpayer's first tax year ending after September 27, 2017. The Proposed Regulations clarify that such election applies to all qualified property (i.e., such election cannot be made at the asset-class level). Fiscal year taxpayers should be aware that, if elected, the 50% bonus depreciation applies only to qualified property both acquired and placed in service after September 27, 2017. For qualified property that was acquired before September 28, 2017, but placed in service in the 2018 calendar year, the prior law phase-down percentage of 40% still applies. The election must be made by the due date, including extensions, of the federal income tax return for the taxpayer's tax year that includes September 28, 2017. For taxpayers filing a consolidated federal income tax return, this election is made separately by each member of the consolidated group by the common parent by attaching a statement to the return. The aforementioned elections may only be revoked by filing a request for a private letter ruling and obtaining the Commissioner of Internal Revenue's written consent. The elections may not be revoked through a request to change the taxpayer's method of accounting. Special rules The Proposed Regulations largely retain the same special rules as those provided in Reg. Section 1.168(k)-1(f), with a few noteworthy changes. Like-kind exchanges The Proposed Regulations clarify that if used property is acquired in a like-kind exchange, only the "new funds" basis and not the carryover basis may qualify for bonus depreciation. This is the case even if the taxpayer elects the restart method for a like-kind exchange. This rule applies only to used property; if the taxpayer acquires new property in a like-kind exchange, the entire basis is eligible for bonus depreciation assuming the other requirements of Section 168(k) are met. Note that, for like-kind exchanges completed after December 31, 2017, the TCJA modified Section 1031 to only apply to like-kind exchanges of real property not held primarily for sale. Accordingly, this specific rule has fairly limited application on a go-forward basis. Section 168(i)(7) Section 168(i)(7) generally provides that, in the case of any property transferred in a transaction described in Section 332, 351, 361, 721 or 731, or in a transaction between members of a consolidated group, the transferee steps-in-the-shoes of the transferor in computing the depreciation deduction with respect to so much of the basis in the hands of the transferee as does not exceed the adjusted basis in the hands of the transferor. Therefore, under the Proposed Regulations, if any qualified property is transferred in a Section 168(i)(7) transaction in the same tax year that the qualified property is placed in service by the transferor, bonus depreciation is allowable for the qualified property and is allocated between the transferor and the transferee based on the number of months of the year each has held the property. The Proposed Regulations provide a new special rule for qualified property that is placed in service in a tax year and then subsequently contributed, in that same tax year, to a partnership under Section 721(a) that has, as one of its partners, a person that previously had a depreciable interest in the property. In this situation, the Proposed Regulations specify that the allowable bonus depreciation is allocated entirely to the contributing partner prior to the Section 721(a) transaction and not to the partnership. The preamble cites situation 1 of Revenue Ruling 99-5 as an example of such a fact pattern, stating that bonus depreciation can be claimed in a Revenue Ruling 99-5, situation 1 transaction by the acquiring partner outside the partnership prior to the deemed contribution. Because such a result can only be achieved if the acquiring partner first places the acquired property into service outside the partnership, presumably Treasury and the IRS intend to deem this to be the result. Implications Pending the issuance of the final regulations, a taxpayer may choose to follow the Proposed Regulations for qualified property acquired and placed in service (or planted or grafted, as applicable) after September 27, 2017, during tax years ending on or after September 28, 2017. Because the TCJA amendments to Section 168(k) have an immediate impact on 2017 tax returns, taxpayers should carefully consider the rules in the Proposed Regulations as they evaluate whether property placed in service during the 2017 tax year is eligible for 100% bonus depreciation. Additionally, to the extent a taxpayer is required to capitalize depreciation under Section 263A and currently uses the simplified production method or simplified resale method, it should consider making a historic absorption ratio (HAR) election to combat the increase in depreciation required to be capitalized under Section 263A that would otherwise result from 100% bonus depreciation. Taxpayers who have already filed their 2017 tax returns and taken a position contrary to the Proposed Regulations should consider whether it makes sense to amend their 2017 return or file a Form 3115, Application for Change in Accounting Method, with their 2018 return to follow the Proposed Regulations. While both approaches can generally be used in this situation, the decision to choose one over the other depends on the direction of the depreciation adjustment and the tax rate that will apply to it. The Proposed Regulations place a premium on the structuring of certain partnership transactions given the ability to potentially claim bonus depreciation in some transactions (e.g., through Section 743(b) basis adjustments) but not other economically similar transactions (e.g., through remedial allocations under Section 704(c)). The Proposed Regulations were published in the Federal Register on August 8, 2018, and written comments and requests for a public hearing must be received by the IRS by October 9, 2018. State tax considerations — decoupling from federal bonus depreciation Section 168(k), as amended, along with the corresponding Proposed Regulations, exacerbates the complexities in state income tax compliance due to issues with state conformity to the corresponding federal tax law. Affected businesses and individuals should separately identify, track and report state depreciation methods among the various classes of depreciable property they hold according to the relevant tax laws in the states in which they file returns. Taxpayers should also recognize that state modifications to federal depreciation directly or indirectly will determine the state tax basis in qualified property upon disposition — through sale, exchange or otherwise — and any gain or loss for state tax purposes will likely be different than that recognized for federal income tax purposes. In some cases, state statutes are not clear on such adjustments, but judicial rulings in some states have supported taxpayers in correctly recognizing these federal/state differences. For these reasons, taxpayers should maintain careful state tax records to document such future federal/state differences. Moreover, taxpayers should carefully monitor depreciation decoupling developments, including important state guidance, in relevant state taxing jurisdictions. In a previous Tax Alert, we highlight that many states and localities (collectively, states) have had a robust history of proactively decoupling from federal bonus depreciation provisions (see Tax Alert 2017-2171). Thus, regardless of how a state generally conforms to the Internal Revenue Code (e.g., fixed date, rolling or selective conformity), most states will not conform to the Section 168(k) changes or the Proposed Regulations. To date, the most notable state to enact new corporate tax law that treats the new Section 168(k) bonus depreciation provisions differently than the state has treated them in the past is Pennsylvania. Specifically, Pennsylvania Senate Bill 1056, enacted on June 28, 2018, continues to disallow federal bonus depreciation under Section 168(k), as amended, for Pennsylvania corporate income tax purposes. However, for property placed in service after September 27, 2017, Pennsylvania law now generally allows a deduction equal to depreciation under the modified accelerated cost recovery system (MACRS) and, for property placed in service before September 28, 2017, continues to allow an additional deduction equal to 3/7th of federal depreciation. As a caution, the state tax impact of Section 168(k), as amended, and the corresponding Proposed Regulations may be different for corporations versus individuals or pass-through entities (such as partnerships, limited liability companies and S corporations). For example, Connecticut Senate Bill 11, enacted on May 31, 2018, generally disallows any additional depreciation under Section 168(k), as amended, for individuals receiving income from pass-through entities but allows those individuals to take the depreciation added back as a 25% subtraction on their personal income tax returns over the four succeeding tax years. Corporations, by contrast, generally compute Connecticut depreciation using MACRS. In this vein, partnerships should be aware of the potential state disconnects from the Proposed Regulations as they relate to partnership transactions involving Section 743(b) basis adjustments. ———————————————
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