Taxes

Plain English Breakdown

Checked against official source text during the last sync.

Tennessee Bonus Depreciation Tax Deduction

This bill changes how businesses can deduct certain costs for tax purposes in Tennessee starting from January 1, 2023.

What This Bill Does

• Changes rules about bonus depreciation deductions for assets bought after January 1, 2023, but before January 1, 2026, to follow federal law under the Tax Cuts and Jobs Act of 2017.
• Allows taxpayers to deduct up to 40% of the cost of new depreciable assets in the year they are purchased starting from January 1, 2026.
• Permits taxpayers to use a higher federal bonus depreciation rate if it is set above 40%, beginning on January 1, 2026.

Who It Names or Affects

• Businesses and corporations that buy depreciable assets after January 1, 2023.

Terms To Know

Bonus Depreciation

An extra tax deduction allowed for certain business expenses related to the purchase of new equipment or property.

Depreciable Assets

Items that a company owns and uses in its operations, which lose value over time and can be deducted from taxes gradually.

Limits and Unknowns

• The exact impact on state tax revenue cannot be determined until the federal government decides if it will increase bonus depreciation rates above 40%.

Official Summary Text

Present law provides that d
oing business in
this state
by a person or taxpayer, or exercising the c
orporate franchise, is declared to be a taxable privilege.
Such excise
tax is an accrued tax and is imposed for the exercise of the specified privilege during the period that coincides with the tax year covered by the return required.
Additionally, f
or a
corporation or another taxpayer treated as a corporation for federal tax purposes, including
a
limited liability company

or
a
taxpayer required to file a federal income tax return on a federal form 1120
(
except for a corporation electing S corporation
or

a unitary business
)
,
"
net earnings
"
or
"
net loss
"
is defined as federal taxable income or loss before the operating loss deduction and special deductions.

For assets purchased on or after January 1, 2023,
present law provides,
for
the
purposes of computi
ng
"
net earnings
"
or
"
net loss
,"
the Internal Revenue Code of 1986
must
be applied as it exists and applies under the Tax Cuts and Jobs Act of 2017
, which outlines rules for depreciation
.
This bill requires this provision to be effective for any purchase
made after January 1, 2023 and prior to January 1, 2026.

For assets purchased on or after January 1, 2026,
this bill provides that
for
the
purposes of computing "net earnings" or "net loss
,
" a taxpayer may annually elect to deduct as an expense 40% of th
e cost of the depreciable assets in the tax year in which the assets are purchased.
Additionally,
if the federal government increase
s
the bonus depreciation percentage applicable to assets to a percentage above 40%

under
the
Internal Revenue Code of 1986
,
then
this bill authorizes
a taxpayer to deduct as an expense the percentage implemented by the federal government, and the Internal Revenue Code of 1986
must
be applied as it exists and applies under the Tax Cuts and Jobs Act of 2017
.

Current Bill Text

HOUSE BILL 477
By Vaughan

SENATE BILL 32
By Bailey

SB0032
000844
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 67,
Chapter 4, Part 20, relative to the deduction for
bonus depreciation for excise tax purposes.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 67-4-2006(a)(12), is amended by
deleting the subdivision and substituting instead:
(12)
(A) For assets purchased on or after January 1, 2023, and prior to
January 1, 2026, for purposes of computing "net earnings" or "net loss" under
this subsection (a), Section 168 of the Internal Revenue Code of 1986 (26 U.S.C.
§ 168), as amended, shall be applied as it exists and applies under the Tax Cuts
and Jobs Act of 2017, Pub. L. No. 115-97.
(B) For assets purchased on or after January 1, 2026, for purposes of
computing "net earnings" or "net loss" under this subsection (a), a taxpayer may
annually elect to deduct as an expense forty percent (40%) of the cost of the
depreciable assets in the tax year in which the assets are purchased.
(C) Notwithstanding subdivision (a)(12)(B), beginning on January 1,
2026, if the federal government elects to increase the bonus depreciation
percentage applicable to assets to a percentage above forty percent (40%) under
Section 168 of the Internal Revenue Code of 1986 (26 U.S.C. § 168), as
amended, then a taxpayer may elect to deduct as an expense the percentage
implemented by the federal government, and Section 168 of the Internal

- 2 - 000844

Revenue Code of 1986 (26 U.S.C. § 168), as amended, shall be applied as it
exists and applies under the Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97.
SECTION 2. This act takes effect upon becoming a law, the public welfare requiring it.