Does New York Allow Section 179 Depreciation?
Unravel how New York State addresses federal Section 179 depreciation. Get clarity on state-specific tax implications for your business.
Section 179 depreciation allows businesses to deduct the full purchase price of qualifying equipment and software in the year they are placed in service, rather than depreciating the cost over several years. This immediate expensing can provide significant tax benefits, improving cash flow for businesses. This article clarifies how New York treats Section 179 deductions, outlining its specific rules and the necessary adjustments for state tax purposes.
New York State Tax Conformity with Federal Law
New York State generally uses federal taxable income as a starting point for calculating state income tax. However, the state frequently “decouples” from certain federal tax provisions, meaning it does not automatically adopt all changes made to the Internal Revenue Code (IRC). This decoupling is particularly common in areas such as depreciation.
New York has historically decoupled from the federal Accelerated Cost Recovery System (ACRS) and Modified Accelerated Cost Recovery System (MACRS) depreciation methods. For property placed in service after 1980, New York often requires depreciation to be calculated using methods allowed under IRC Section 167. This divergence means that a business’s taxable income for federal purposes can differ from its New York State taxable income.
New York has also consistently decoupled from federal bonus depreciation (IRC Section 168(k)). While businesses may claim bonus depreciation on their federal returns, they generally cannot do so for New York State tax purposes. This fundamental difference necessitates specific adjustments when preparing state tax returns, ensuring that federal and state depreciation calculations are reconciled.
New York’s Section 179 Depreciation Rules
New York State does allow for Section 179 expensing, but its application is distinct from federal bonus depreciation. While New York often conforms to federal Section 179 provisions, it typically decouples from federal bonus depreciation rules. This means that a business can generally claim a federal Section 179 deduction for New York State purposes, but the significant difference arises with bonus depreciation.
For federal tax purposes in 2024, the maximum Section 179 deduction is $1,220,000, with a phase-out beginning when property placed in service exceeds $3,050,000. For 2025, these limits are $1,250,000 and $3,130,000, respectively.
Even if federal Section 179 is claimed, any additional bonus depreciation taken federally must be added back for New York State tax calculations. This creates a basis difference between federal and state assets, as the property’s cost may be fully expensed federally but must be depreciated over time for New York State. Qualifying property for Section 179 generally includes tangible personal property like machinery, equipment, computers, and certain vehicles, provided it is used more than 50% for business.
Calculating New York Section 179 Adjustments
Businesses must perform specific adjustments to reconcile their federal Section 179 deductions with New York State tax requirements. The primary adjustment involves “adding back” any federal bonus depreciation claimed. This means the amount of bonus depreciation deducted on the federal return is effectively reversed for state tax purposes, increasing New York taxable income.
After adding back the federal bonus depreciation, businesses must calculate New York State depreciation using the state’s allowed methods, typically those under IRC Section 167. This often results in a slower depreciation schedule for state purposes compared to the accelerated federal methods. The difference between the federal depreciation (including Section 179 and bonus depreciation) and the New York depreciation calculation creates either an addition or subtraction modification to federal adjusted gross income when determining New York adjusted gross income.
These adjustments impact the asset’s basis differently for federal and state tax purposes. When an asset is sold or disposed of, further adjustments may be required to account for these basis differences, ensuring that the gain or loss is correctly reported for New York State. New York State forms, such as IT-399, the New York Depreciation Schedule, and IT-225, New York State Modifications, are used to report these adjustments.
Recordkeeping and Reporting for New York Businesses
Accurate recordkeeping is essential for businesses in New York to manage their depreciation deductions and ensure tax compliance. Businesses should maintain separate depreciation schedules for federal and New York State tax purposes. This allows for clear tracking of the differing asset bases and accumulated depreciation under each jurisdiction’s rules.
Detailed records should include the original cost of assets, the date placed in service, the federal Section 179 deduction taken, any federal bonus depreciation claimed, and the depreciation calculated for New York State. Supporting documentation, such as purchase invoices and receipts, should be retained for at least three years after filing the return. These records facilitate the accurate completion of New York State tax forms, including Form IT-399 for depreciation adjustments and Form IT-225 for income modifications.