Corporate Tax Base 16. The tax base under the CIT is computed as though section 168(k) bonus depreciation is not in effect. When computing depreciation under the CIT for assets that were purchased in years prior to January 1, 2012, should
Yes. As with the MBT, for the CIT “federal taxable income” means “taxable income as defined in section 63 of the internal revenue code, except that federal taxable income shall be calculated as if section 168(k) . . . of the [IRC is] not in effect.” MCL 206.607(1). In other words, both the MBT and CIT decouple from federal bonus depreciation.
To the extent applicable, federal depreciation rules are utilized for the purpose of calculating the CIT base. Although there is no specific deduction or credit for depreciation expenses under the CIT, a taxpayer receives the benefit of any depreciation deduction taken on its federal income tax return due to the structure of the income tax base that is based on federal taxable income as a starting point. Thus, the calculation of the income tax base begins with the taxpayer’s federal taxable income, a figure that already includes any deductions taken by the taxpayer on account of depreciation expenses. Since the MBT also decoupled from federal bonus depreciation, the asset’s basis used for MBT purposes and the depreciation methods used on those assets will similarly be used under the CIT without further adjustment.
Any IRC 168(k) bonus depreciation claimed on a taxpayer’s federal return will not be allowed for CIT purposes. Taxpayers should re-compute CIT depreciation using the federally accepted depreciation method that computes a depreciation amount as if IRC 168(k) was not in effect. This depreciation method must be used consistently over the life of the asset until retired or disposed of when computing CIT income. While bonus depreciation is not allowed in the year of acquisition, this is merely a timing difference and the taxpayer will recover the basis of the asset through depreciation over the life of the asset. The federal depreciation expense that is calculated as if IRC 168(k) was not in effect is the deduction used in calculating CIT income. A taxpayer must keep sufficient records to track the basis of the asset and depreciation deduction claimed for purposes of the CIT.
Note, however, that the amount of IRC 179 expense deductions taken on a taxpayer’s federal tax return in any year will be allowed in computing the CIT base for that year. The amount of IRC 179 expense will not vary in computing income for federal and Michigan tax purposes. The federal IRC 179 deduction that is taken will reduce the basis of the asset that is subject to depreciation. A taxpayer that did not elect and take a federal IRC 179 expense deduction on its federal tax return may not claim the federal deduction in its computation of income under the CIT.