Governor Deval Patrick's Budget Recommendation - House 1 Fiscal Year 2014

Accelerated Deductions from Gross Income


Fiscal Year 2014 Resource Summary (in Millions)
TAX EXPENDITURE FY2012 FY2013 FY2014
Accelerated Deductions from Gross Income 160.1 218.6 301.1

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item description amount
Accelerated Deductions from Gross Income 301.1
2.301 Modified Accelerated Cost Recovery System on Rental Housing
Landlords and investors in rental housing may use accelerated methods of depreciation for new and used rental housing. Straight-line depreciation over the property's expected useful life is the generally accepted method for recovering cost, which is close to economic depreciation. However, through the past decades, the systems which adopt accelerated depreciation methods have been introduced. The current system is MACRS(Modified Accelerated Cost Recovery System) which was enacted in 1986. This system further accelerated the rate of recovery of depreciation than under ACRS(Accelerated Cost Recovery System) which was enacted in 1981. Differences between MACRS and ACRS are 1) deductions from the 150-percent declining balance method to the 200-percent declining balance; 2) certain assets were reclassified and the number of asset classes (80) was increased; and 3) the recovery period for residential rental property was extended to 27.5 years and for nonresidential real property to 31.5 years. For details, refer to the document, "Background and Present Law Relating to Cost Recovery and Domestic Production Activities", which was published by the Joint Committee on Taxation in their homepage on March 6th , 2012.

The excess of allowable depreciation over the generally accepted depreciation constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC S. 168
Estimate:  $2.7
 
2.7
2.303 Expenditures to remove architectural and transportation barriers to the handicapped and elderly
Taxpayers may elect to deduct up to $15,000 of the costs of removing architectural or transportation barriers to the handicapped in the year these costs are incurred. The immediate deduction of these expenditures, which would otherwise have to be capitalized and depreciated over a longer period, constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 190
Estimate:  $0.6
 
0.6
2.304 Election to Deduct and Amortize Business Start-up Costs
Taxpayers who pay or incur business start-up costs and who subsequently enter the trade or business can elect to expense up to $5,000 of the costs. The $5,000 deduction amount is reduced dollar for dollar when the start-up expenses exceed $50,000. The balance of start-up expenses (if any) is amortized over a period of not less than 180 months, starting with the month in which the business begins. The election must be made no later than the date (including extensions) for filing the return for the tax year in which the business begins or is acquired. A taxpayer is deemed to have made an election to deduct and amortize start-up expenses for the tax year in which the active trade or business to which the expenses relate begins. A taxpayer who does not make the election must capitalize the expenses.

Origin:  IRC, S. 195
Estimate:  $0.2
 
0.2
2.305 Modified Accelerated Cost Recovery System for Equipment
For depreciable tangible personal property placed in service after 1980, capital costs may be recovered using the Accelerated Cost Recovery System (ACRS), which applies accelerated methods of depreciation over set recovery periods. For property placed in service after 1987, Massachusetts has adopted the Modified Accelerated Cost Recovery System (MACRS), which generally uses double declining balance depreciation over specified periods that are substantially shorter than actual useful lives (200% declining balance for 3-, 5-, 7- and 10-year recovery property and 150% declining balance for 15- and 20-year property). The excess of accelerated depreciation over economic depreciation constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

For the past decade, the federal government has allowed "bonus depreciation" which further accelerates depreciation for assets placed in service in certain years. However, Massachusetts does not follow it.

For a more detailed description, refer to the description for item 2.301

Origin:  IRC, S. 168
Estimate:  $190.6
 
190.6
2.306 Deduction for Excess First-Year Depreciation
Taxpayers may elect to expense certain business assets purchased during the taxable year. American Taxpayer Relief Act of 2012 (enacted January 1, 2013) increased the benefits, making changes to IRC sec. 179. For tax year 2012, Massachusetts adopts the increased federal amounts provided by IRC sec. 179. Hence, the total deduction cannot exceed $500,000; for taxpayers whose investment in eligible assets exceeds $2,000,000 in the year, the $500,000 ceiling is reduced by $1 for each dollar of investment above $2,000,000. Any remaining cost may be depreciated according to MACRS as described in item 2.305. The immediate deduction constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 179
Estimate:  $21.3
 
21.3
2.307 Modified Accelerated Depreciation on Buildings (other than Rental Housing)
Construction may be depreciated under methods which produce faster depreciation than economic depreciation. The precise rules have been changed repeatedly in recent years by revisions of the federal tax code. For structures (other than housing) placed in service after 1986, federal law requires straight-line depreciation over a 31.5 year life. The excess of accelerated depreciation over economic depreciation is a tax expenditure. For a more detailed description of accelerated depreciation, see the description for item 2.301.

Origin:  IRC, S. 168
Estimate:  $1.3
 
1.3
2.308 Expensing Research and Development Expenditures in One Year
Taxpayers may elect to treat research or experimental expenditures incurred in connection with a trade or business as immediately deductible expenses. Under generally accepted accounting principles, at least some of these costs would otherwise be treated as capital expenditures and depreciated or amortized over a period of years. Their immediate deduction constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 174
Estimate:  $83.9
 
83.9
2.309 Expensing Exploration and Development Costs
Certain capital costs incurred in bringing a known mineral deposit into production are deductible in the year incurred. A portion of domestic mining exploration costs can also be expensed, although they will be recaptured if the mine reaches the production stage. Certain intangible drilling and development costs of domestic oil, gas, and geothermal wells are deductible when made, but to a certain extent may be recaptured upon disposition of oil, gas, or geothermal property to which they are properly chargeable. The immediate expensing of these costs, which would otherwise be capitalized and recovered through depreciation or through depletion as the natural resource is removed from the ground, constitutes a tax expenditure resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 193, 263(c), 616,
617
; M.G.L. c. 63, S. 30.4.
Estimate:  Negligible
 
Negligible
2.311 Five-Year Amortization of Pollution Control Facilities
Taxpayers may elect to amortize the cost of a certified pollution control facility over a five-year period, allowing for accelerated recovery of these costs. Accelerated recovery is only available for pollution control facilities subsequently added to plants that were in operation before 1976. The excess of accelerated recovery over depreciation deductions otherwise allowable constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 169
Estimate:  N.A.
 
N.A.
2.312 Alternative energy sources; deduction
In determining net income, a corporation may elect to take an immediate deduction for expenditures made for certain solar or wind powered systems or units located in Massachusetts and used exclusively in the business, in lieu of all other deductions and credits including the deduction for depreciation. Without this provision, such expenditures would have to be capitalized and depreciated. The immediate deduction constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  M.G.L. c. 63, S. 38H
Estimate:  $0.4
 
0.4
2.313 Seven-Year Amortization for Reforestation
Taxpayers may elect to amortize reforestation costs for qualified timber property over a seven-year period. In the absence of this special provision, these costs would be capitalized and depreciated over a longer period or recovered when the timber is sold. The accelerated cost recovery constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.

Origin:  IRC, S. 194
Estimate:  $0.1
 
0.1

Key:

ORIGIN  
IRCFederal Internal Revenue Code (26 U.S.C.)
M.G.L. Massachusetts General Laws
U.S.C United States Code
ESTIMATES All estimates are in $ millions.


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