United States

Rhode Island issues guidance regarding application of section 179 expense limits

TAX ALERT  | 

On Feb. 3, 2015, the Rhode Island Department of Revenue issued Advisory 2015-02, providing guidance regarding the state’s application of the section 179 deduction following federal changes to the deduction limits enacted on Dec. 19, 2014.

Historically, Rhode Island has decoupled from the federal section 179 deduction by specifically limiting the allowable expense to $25,000 per tax year. Pursuant to legislation passed in 2013, Rhode Island re-coupled to the section 179 deduction for all assets placed in service on or after Jan. 1, 2014. On Dec. 19, 2014, President Obama signed HR 5771, which, retroactive to Jan. 1, 2014, increased the section 179 deduction limit from $25,000 to $500,000 for assets placed in service in 2014 and increased from $200,000 to $2 million the overall limit before the deduction is reduced. As a rolling conformity state, Rhode Island automatically adopted these changes to the section 179 deduction when enacted; however, some uncertainty existed regarding the application of the limit increases, particularly in relation to fiscal-year filers.

To clarify any uncertainty, the Rhode Island Department of Revenue affirmatively stated that the increased limits should be applied on a calendar-year basis  and that all assets placed in service from Jan. 1, 2014, through Dec. 31, 2014, qualify for the increased limit. Accordingly, a calendar-year taxpayer that placed assets in service during the 2014 calendar year will benefit from the $500,000 limit. Further, fiscal-year taxpayers may apply the $500,000 limit to two consecutive tax years, one ending in the 2014 calendar year and the other beginning in the 2014 calendar year. Such taxpayers can thereby obtain an enhanced section 179 benefit for Rhode Island purposes where the assets in question were placed in service during the 2014 calendar year but on specific dates that were split between two fiscal years.

Rhode Island taxpayers, and fiscal-year taxpayers in particular, should review the Rhode Island treatment of their section 179 deductions in light of this guidance.

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