Section 179 expensing add back
Example 1 — Sole proprietor
Mack is a sole propriety of a trucking company who purchased a new dump truck that he placed in service in 2009 and used for his
business. On his federal return, Mack elects to expense $100,000, which is the entire cost of the new truck. He has business income of
$80,000. His federal section 179 expense deduction is limited based on the cost of the asset in comparison to his business income. Since
he is limited to expensing $80,000 (his business income), Mack will have a carryover of $20,000 ($100,000 – $80,000 = $20,000) on his
federal return.
For his Minnesota return, Mack will have to add back 80 percent of the difference from the increased federal section 179 expense deduction and the Minnesota limit. The difference is calculated by re-computing Form 4562 for Minnesota purposes and subtracting the
Minnesota limit from line 12 of the Minnesota Form 4562 from line 12 of the federal Form 4562 ($80,000 – $25,000 = $55,000).
See the following Form 4562 examples (for federal and Minnesota) and Minnesota Schedule M1M worksheet.
Federal Form 4562 — Example 1
— Federal calculation
Minnesota Form 4562 — Example 1
— Minnesota calculation
25,000
200,000
25,000
Continued
Section 179 expensing add back
Example 1 — Sole proprietor (continued)
Page 2
Minnesota Schedule M1M, line 4 worksheet — Example 1
$80,000
$25,000
$55,000
$44,000
Example 1 answer:
Mack’s Minnesota addback for 2009 is $44,000 (step 4 from above worksheet for line 4). Also, Mack will be able to subtract 20 percent
of the amount he added back in 2009 — or $8,800 ($44,000 x 20%) — in each of the next five years (tax years 2010 through 2014).
• In the first year Minnesota section 179 expenses are limited to $36,000 ($25,000 Minnesota limit plus $11,000, which is 20 percent of
step 3 above).
• He recovers the addback amount of $44,000 over the next five years (2011 until 2014) by subtracting $8,800 each year.
• When the $20,000 (line 13 of federal Form 4562) carryover of section 179 expense is used, he may have a section 179 expensing
addback in that year if there are other items that are expenses and the total exceeds the Minnesota $25,000 limit.