Question

Darnell is a sole proprietor and resident of the fictional state of East Columbia. He receives business income from a business operated entirely within East Columbia. In 2024, Darnell placed a new machine (a 7-year asset) into service for his business. On his federal return, he claimed the 80% special depreciation allowance. East Columbia does NOT conform to the federal special depreciation allowance.

Which of the following is most likely correct for Darnell's East Columbia tax return?

On his 2024 state return, Darnell will:
Claim a smaller 2024 depreciation deduction for state than for federal purposes.
Claim a larger 2024 depreciation deduction for state than for federal purposes.
Carry the 80% federal special depreciation deduction through to the state return.
Claim no depreciation deduction and recover the difference through a state Credit for Unclaimed Depreciation.

Answer 1

Claim a smaller 2024 depreciation deduction for state than for federal purposes.

Explanation: East Columbia does not conform to the federal special (bonus) depreciation, so Darnell must add back the 80% bonus deduction to compute state taxable income and then take state depreciation under the state's depreciation rules (i.e., regular MACRS/other state method) on the unreduced basis. Because he took an immediate 80% expense on the federal return, his federal 2024 deduction will be much larger than the state depreciation allowed in 2024.

Short numeric illustration: $10,000 cost; federal: 80% bonus = $8,000 plus MACRS on remaining $2,000 (1st‑year 7‑yr rate ≈14.29% → $285.80) = $8,285.80 total; state (no bonus): 14.29% × $10,000 = $1,429.