After enactment of the Federal Tax Cuts and Jobs Act last year (which allowed taxpayers to claim bonus depreciation for the full cost of eligible property placed in service after September 27, 2017), the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2017-02. In Bulletin 2017-02, the Department concluded that corporate taxpayers were required to add back the 100% bonus depreciation amount to Pennsylvania taxable income and that no depreciation deductions would be allowed on 100% bonus depreciation property until the year in which the taxpayer disposed of the property.
In response to the proposed disallowance of all cost recovery for Pennsylvania corporate net income tax (“CNI”) purposes, the General Assembly passed Act 72 of 2018, which was signed into law by Governor Wolf on June 28. Under Act 72, for property placed in service after September 27, 2017, Pennsylvania corporate taxpayers taking advantage of the new 100% bonus depreciation rules for Federal tax purposes may use Federal depreciation rules, other than bonus depreciation, for CNI purposes. This essentially places taxpayers in the same position they would have been without the Federal bonus depreciation.
Corporation Tax Bulletin 2018-03, issued July 6, supersedes Bulletin 2017-02. In Bulletin 2018-03, the Department of Revenue clarified that it will continue to allow depreciation deductions under Corporation Tax Bulletin 2011-01 for property placed in service before September 28, 2017. For property placed in service after September 27, 2017, Act 72 allows an additional deduction which is limited to the depreciation amounts under the Modified Accelerated Depreciation System (MACRS). The taxpayer can deduct any unused bonus depreciation in the tax year in which the asserts are sold or otherwise disposed of.
Taxpayers who have already filed 2017 CNI returns which include assets subject to Act 72 may filed amended returns to claim an additional deduction for the amount of deprecation allowed under MACRS.