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Section 179 Minnesota Conformity

by Rob Holcomb and Megan Roberts, Extension Educators

Governor Walz signed the Minnesota Bonding Bill into law on October 21, 2020. In addition to addressing capital expenditures for the state, the law also includes several retroactive tax law changes.

Minnesota is no longer decoupled from federal treatment of Section 179 expenses. Moving forward, no addbacks are needed when electing to take a Section 179 deduction on a federal tax return. This change is also retroactive back to 2017. Thus, taxpayers have the option to go back and amend 2017, 2018, and 2019 Minnesota tax returns and take the allowable section 179 deduction on the Minnesota return for each of those respective tax years. Of course, if taxpayers do amend, the addback carryforwards will change accordingly.

PLEASE NOTE: These changes to Section 179 do not affect the current or past treatment of bonus depreciation. Use of bonus depreciation on the federal return still requires an addback on the state of Minnesota return.

Taxpayers may choose not to amend prior year Minnesota returns and not reduce the addback for qualifying depreciable property. Taxpayers may continue to claim the related one-fifth subtractions on subsequent returns. If the Minnesota Department of Revenue audits a return with qualifying property, the addback and subsequent subtractions will be adjusted.

The Bonding Bill also changed the treatment of like-kind-exchanges (LKE) so that Minnesota is in conformity with the federal treatment of LKE. This change is retroactive back to calendar years 2018 and 2019.

In the past, like-kind-exchange treatment was allowed for trading of machinery (personal property). The Tax Cuts and Jobs Act removed like-kind treatment for exchanges of personal property. LKEs remain for exchanges of real property (land and/or buildings). This change from the Tax Cuts and Jobs Act was implemented for tax years beginning after December 31, 2017. In the meantime, Minnesota continued to allow LKEs of personal property on the State return while LKEs of personal property were not allowed on the Federal return.

This change will require taxpayers with LKEs of personal property (largely machinery trades) during the 2018 and 2019 tax years to amend their State of Minnesota tax returns.

This information is educational in nature, and is not tax or legal advice. 

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