Taxpayers who added back:
- 5/6 of their depreciation expense in a given tax year should deduct 1/5 of the amount added back in the subsequent five years;
- 2/3 of their depreciation expense in a given tax year (because of a 10% increase in Ohio employer withholding) should deduct 1/2 of the amount added back in the subsequent two years; OR
- All of their depreciation expense in a given tax year (because of a federal net operating loss (NOL)) should deduct 1/6 of the amount added back in the subsequent six years.
Example 1: Mark added back $150,000 (5/6) of depreciation for the current tax year. For each of the 5 subsequent tax years, Mark can deduct:
- Mark’s annual depreciation deduction: $16,667 + $13,333 = $30,000
If instead, Mark added back $120,000 (2/3) for the current tax year, for each of the 2 subsequent tax years, he can deduct:
- Mark’s annual depreciation deduction: $33,333 + $26,667 = $60,000
Finally, if Mark added back $180,000 (6/6) for the current tax year, for each of the 6 subsequent tax years, he can deduct:
- Mark’s annual depreciation deduction: $16,667 + $13,333 = $30,000
Exception: A person generally eligible for a depreciation deduction cannot claim the deduction in any tax year that includes a federal NOL, an NOL carryback, or an NOL carryforward. Instead, the person must carry forward the deduction to the return for the next subsequent tax year that does not report an NOL.
Example 2: Mark added back $150,000 (5/6) of depreciation for the current tax year. The following table shows Mark’s federal adjusted gross income for the subsequent 5 years:
| Tax Year | Current Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Mark's FAGI | $100,000 | -$50,000 | -$90,000 | $45,000 | $75,000 |
$125,000 |
Because of the NOLs, Mark cannot claim his Ohio depreciation deduction in years 1 or 2. Instead, he must carry each of them forward to the first year without an NOL (year 3). The following table shows Mark’s Ohio depreciation deduction for the applicable period:
| Tax Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Mark's Ohio Depreciation Deduction | $0 | $0 | $90,000* | $30,000 | $30,000 |
*Year 3 depreciation deduction: Deduction from tax years 1, 2 and 3 = $30,000 + $30,000 + $30,000
The Department of Taxation provides a worksheet
to assist in the calculation of future tax year’s depreciation deductions that can be found in the “Worksheets” section of the IT 1040 and SD 100 instructions.
See R.C. 5747.01(A)(18)(a) and (c).
