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S.F. No. 540 - Full Federal Conformity for Section 179 Expensing
Author: Senator Andrew R. Lang
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
Date: February 22, 2017


Section 179 expensing allows businesses to deduct the entire cost of certain equipment on their federal tax return in the year of purchase, instead of taking deductions for depreciation over a number of years. Purchases of most equipment and other personal property qualify for Section 179 expensing, including many leasehold improvements by businesses renting their facilities.

Under current law, Minnesota limits this expensing for the year of purchase to $25,000 (the amount in effect at the federal level in 2003) for a maximum of $200,000 in expenses. Since 2003, Section 179 expensing limits have increased at the federal level. Under current law, the federal limit is $500,000 for up to $2 million in expensing.

The current Minnesota Section 179 expensing approach allows a business to claim up to $25,000 in expensing on its Minnesota return. This amount is reduced dollar for dollar by the cost of property placed in service over $200,000: If a business claims more in Section 179 expensing under the current $500,000/$2 million federal allowances than the $25,000/$200,000 Minnesota allowances, the business must add back 80 percent of the additional amount claimed to Minnesota taxable income on its Minnesota return, and then may subtract one-fifth of the amount added back in each of the next five tax years. In that way, the full amount claimed at the federal level is ultimately allowed at the state level.

This bill would conform to the federal Section 179 expensing model, beginning with purchases in tax year 2017. For tax years before 2017, the current Minnesota approach would apply and expensing would follow the five year add-back schedule until completed.

Section 1 conforms federal Section 179 expensing for individual filers, which includes S-corporations, partnerships, and LLCs filing as partnerships. Section 2 conforms federal 179 expensing for corporate filers.

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