Pro Series recalculates the passive loss limitation due to bonus depr adjustments for Indiana. Many Indiana CPAs say no recalculation, only enter adjustment amounts ??

[itonewbie · Accepted solution]

My understanding is that the IN CPA's are right because Title 6 of the Indiana Code does not provide for any adjustment for PAL but specifically requires adjustments for bonus depreciation and §179 deduction.  This is not unreasonable except it does create a timing difference in terms of recognition of income and loss, which would ultimately be reconciled at the disposition of the asset in question because IN provides an adjustment for the difference in adjusted basis (as part of a 3-step approach).

[ProbstDoug]

Thanks itonewbie.  I think Indiana wants to keep it a relatively easy adjustment, just a different depreciation method for State (as in Book, Federal and State depreciation methods).  For some reason ProSeries appears to be taking the Indiana instructions to the extreme:  "Figure the net income (or loss) that would have been included in federal adjusted gross income had the bonus depreciation method not been used."   And assuming this recalculated AGI would include a recalculated PAL.  So you would end up with a Federal PAL and a State PAL.  

[itonewbie]

Glad to be of help.

I can see how they take this literally but this is not what the legislature intended or how the DoR applies the law.  This Commissioner's Directive clearly lays out the adjustments required and PAL is not part of the equation: https://www.in.gov/dor/reference/files/cd19.pdf

[ProbstDoug]

I agree with itonewbie 100%.  I had previously read that directive which I agree indicates the federal AGI starting point is unchanged except for the depreciation adjustment itself.  Other tax software which is more robust than ProSeries computes this correctly in agreement with other CPAs.  And by the way, these other programs will compute the new "Business Loss Limitation with Form 461 whereas ProSeries totally ignores this new limitation.

[itonewbie]

Time for Intuit to step up their game!

[Cbaugher]

The instructions for the Bonus Depreciation Add Back clearly states "Figure the Net Income (or loss) that would have been included in federal adjusted gross income had the bonus depreciation method not been used.  Then, enter the difference, which may be a positive or negative amount."  If they intended you to just add back the bonus depreciation amount taken, less current year depreciation on the bonus amount, they wouldn't tell you to figure the net income or loss that would have been included in federal AGI.  Lacerte does it the same way.

Additionally, page 39 of the Indiana Audit Manual states:

BONUS DEPRECIATION ADDBACK/DEDUCTION REQUIREMENTS FOR AN INDIVIDUAL Add or subtract the amount necessary to make the adjusted gross income of any customer that owns property for which bonus depreciation was allowed in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made under Section 168(k) of the Internal Revenue Code to apply bonus depreciation to the property in the year that it was placed in service. IC 6-3-1-3.5(a)15

Which appears to agree with instructions and ProSeries and Lacerte's calculations.  If ProSeries and Lacerte are both doing it, I tend to lean towards they know what they're doing when it also agrees with the instructions and Audit Manual.  I would also consider the same with basis loss limitations.