KRS 141.0101 — Depreciation methods and transitional rules

(1) (a) The provisions of subsections (2) to (11) of this section shall apply to taxable
years beginning before January 1, 1994.
(b) The provisions of subsections (12) to (15) of this section shall apply to taxable
years beginning after December 31, 1993.
(c) The provisions of subsection (16) of this section apply to property placed in
service after September 10, 2001.
(2) For property placed in service prior to January 1, 1990, in lieu of the depreciation
and expense deductions allowed under Internal Revenue Code Sections 168 and
179, a deduction for a reasonable allowance for depreciation, exhaustion, wear and
tear, and obsolescence of property used in a trade or business shall be allowed and
computed as set out in subsections (3) to (11) of this section. For prop erty placed in
service after December 31, 1989, the depreciation and expense deductions allowed
under Sections 168 and 179 of the Internal Revenue Code shall be allowed.
(3) Effective August 1, 1985, "reasonable allowance" as used in subsection (2) of this
section shall mean depreciation computed in accordance with Section 167 of the
Internal Revenue Code and related regulations in effect on December 31, 1980, for
all property placed in service on or after January 1, 1981, except as provided in
subsections (6) to (8) of this section.
(4) Depreciation of property placed in service prior to January 1, 1981, shall be
computed under Section 167 of the Internal Revenue Code, and the method elected
thereunder at the time the property was first placed in service or as changed with the
approval of the Commissioner of Internal Revenue Service or as required by
changes in federal regulations.
(5) Taxpayers other than corporations shall be allowed to deduct as depreciation on
recovery property placed in service before A ugust 1, 1985, an amount calculated
under Section 168 of the Internal Revenue Code subject to the provisions of
subsections (6) and (8) of this section. Corporations with a taxable year beginning
on or after July 1, 1984, and before August 1, 1985, shall c alculate a deduction for
depreciation on recovery property placed in service prior to August 1, 1985, using
either of the following alternative methods:
(a) Dividing the total of the deductions allowed under Internal Revenue Code
Section 168 by one and four tenths (1.4); and
(b) Calculating the deduction that would be allowed or allowable under the
provisions of Section 167 of the Internal Revenue Code.
(6) Recovery property placed in service on or after January 1, 1981, and before August
1, 1985, and subje ct to transition under subsection (8) of this section, shall be
subject to depreciation under Section 167 of the Internal Revenue Code, restricted
to the straight line method therein provided over the remaining useful life of such
assets.
(7) Depreciation of property placed in service on or after August 1, 1985, shall be
computed under Section 167 of the Internal Revenue Code.
(8) Transition from Section 168 of the Internal Revenue Code, Accelerated Cost
Recovery System (ACRS) depreciation, to the depreciat ion allowed or allowable
under this section shall be reported in the first taxable year beginning on or after
August 1, 1985. To implement the transition, the following adjustments shall be
made:
(a) Taxpayers other than corporations shall use the adjusted Kentucky basis for
property placed in service on or after January 1, 1981. "Adjusted Kentucky
basis" means the basis used for determining depreciation under Section 168 of
the Internal Revenue Code l ess the allowed or allowable depreciation and
adjustment for election to expense an asset (Section 179 of the Internal
Revenue Code);
(b) Corporations shall adjust the federal unadjusted basis by increasing such basis
by the ACRS depreciation not allowed a s a deduction in determining
Kentucky net income for tax years beginning after June 30, 1984, less allowed
or allowable ACRS depreciation for federal income tax purposes.
Corporations will not be permitted to adjust the basis by the ACRS
depreciation not a llowed for Kentucky income tax purposes in tax years
beginning on or before June 30, 1984.
(9) A taxpayer may elect to treat the cost of property placed in service on or before July
31, 1985, as an expense as provided in Section 179 of the Internal Revenue Code in
effect on December 31, 1981, except that the aggregate cost which may be expensed
for corporations shall not exceed five thousand dollars ($5,000). A taxpayer may
elect to treat the cost of property placed in service on or after August 1, 1985, as an
expense as provided in Section 179 of the Internal Revenue Code in effect on
December 31, 1980. Computations, limitations, definitions, exceptions, and other
provisions of Section 179 of the Internal Revenue Code and related regulations shall
be construed to govern the computation of the allowable deduction.
(10) Upon the sale, exchange, or disposition of any depreciable property placed in
service on or after January 1, 1981, capital gains or losses and the amount of
ordinary income determined under the provisions of the Internal Revenue Code
shall be computed for Kentucky income tax purposes as follows:
(a) Compute the Kentucky unadjusted basis which is the cost of the asset reduced
by any basis adjustment made by the taxpayer under Section 48(q)(1) of the
Internal Revenue Code and any expense allowed and utilized under Section
179 of the Internal Revenue Code (First Year Expense) in determining
Kentucky net income in prior years, and
(b) Compute the adjusted basis by subtracting the depreciation allowed or
allowable for Kentucky income tax purposes from the unadjusted basis,
except corporations will not be permitted to adjust the basis of assets by the
ACRS depreciation not allowed for Kentucky income tax purposes in the tax
years beginning on or before June 30, 1984, and
(c) Compute the gain or loss by subtracting the adjusted basis from the value
received from the disposition of the depreciable property, and
(d) Compute the recapture of depreciation required under Sections 1245 through
1256 of the Internal Revenue Code and related regulations, and
(e) Unless otherwise provided in this subsection the provisions of the Internal
Revenue Code and related regulations governing the determination of capital
gains or losses shall apply for Kentucky income tax purposes.
(11) Unless otherwise provided by this chapter, the basis of property placed in service
prior to January 1, 1990, for purposes of Kentucky income tax shall be the basis,
adjusted or unadjusted, required to be used under Section 167 of the Internal
Revenue Code in effect on December 31, 1980.
(12) As used in this subsection to subsection (14) of this section:
(a) "Transition property" means any property placed in service before the first day
of the first taxable year beginning after December 31, 1993, and owned by the
taxpayer on the first day of the first taxable year beginning after December 31,
1993.
(b) "Adjusted Kentucky basis" means the amount computed in accordance with
the provisions of paragraph (b) of subsection (10) of this section for tran sition
property.
(c) "Adjusted federal basis" means the original cost, or, in the case of Section 338
property, the adjusted grossed-up basis of transition property less:
1. Any basis adjustments required by the Internal Revenue Code for
credits; and
2. The total accumulated depreciation and election to expense deductions
allowed or allowable for federal income tax purposes.
(d) "Section 338 property" means property to which an adjusted grossed -up basis
has been allocated pursuant to a valid election made b y a purchasing
corporation under the provisions of Section 338 of the Internal Revenue Code.
(e) "Transition amount" means the net difference between the adjusted Kentucky
basis and the adjusted federal basis of all transition property determined as of
the first day of the first taxable year beginning after December 31, 1993.
(13) For taxable years beginning after December 31, 1993, the amounts of depreciation
and election to expense deductions, allowed or allowable, the basis of assets,
adjusted or unadjus ted, and the gain or loss from the sale or other disposition of
assets shall be the same for Kentucky income tax purposes as determined under
Chapter 1 of the Internal Revenue Code.
(14) For taxable years beginning after December 31, 1993, the transition a mount
computed in accordance with the provisions of paragraph (e) of subsection (12) of
this section shall be reported by the taxpayer as follows:
(a) In the first taxable year beginning after December 31, 1993, and the eleven
(11) succeeding taxable years, the taxpayer shall include in gross income one -
twelfth (1/12) of the transition amount if:
1. The adjusted federal basis of transition property exceeds the adjusted
Kentucky basis of transition property;
2. The transition amount exceeds five million dollars ($5,000,000);
3. The transition amount includes property for which an election was made
under Section 338 of the Internal Revenue Code; and
4. The taxpayer elects the provisions of this paragraph with the filing of an
amended income tax return for the first taxable year beginning after
December 31, 1993.
(b) In the first taxable year beginning after December 31, 1993 and the three (3)
succeeding taxable years, if the transition amount exceeds one hundred
thousand dollars ($100,000), or if the transition amount does not exceed one
hundred thousand dollars ($100,000) and the taxpayer elects the provision of
this paragraph with the filing of the income tax return for the first taxable year
beginning after December 31, 1993, the taxpayer shall:
1. Deduct fro m gross income twenty -five percent (25%) of the transition
amount if the adjusted Kentucky basis of transition property exceeds the
adjusted federal basis of transition property; or
2. Add to gross income twenty-five percent (25%) of the transition amount
if the adjusted federal basis of transition property exceeds the adjusted
Kentucky basis of transition property.
(c) In the first taxable year beginning after December 31, 1993, if the transition
amount does not exceed one hundred thousand dollars ($100,000) and the
taxpayer does not elect the provisions of paragraph (b) of this subsection, the
taxpayer shall:
1. Deduct from gross income the total transition amount if the adjusted
Kentucky basis of transition property exceeds the adjusted federal basis
of transition property; or
2. Add to gross income the total transition amount if the adjusted federal
basis of transition property exceeds the adjusted Kentucky basis of
transition property.
(15) Notwithstanding any other provision of this section to the contrary, any qualified
farming operation, as defined in KRS 141.410, shall be allowed to compute the
depreciation deduction for new buildings and equipment purchased to enable
participation in a networking project, as defined in KRS 141.410, on an accelerated
basis at two (2) times the rate that would otherwise be permitted under the
provisions of this section. The accumulated depreciation allowed under this
subsection shall not exceed the taxpayer's basis in such property.
(16) (a) For property placed in service after September 10, 2001, only the depreciation
deduction allowed under Section 168 of the Internal Revenue Code in effect
on December 31, 2001, exclusive of any amendments made subsequent to that
date, shall be allowed.
(b) For property placed in service after September 10, 2001, but prior to January
1, 2020, only the expense deduction allowed under Section 179 of the Internal
Revenue Code in effect on December 31, 2001, exclusive of any amendments
made subsequent to that date, shall be allowed.
(c) For property placed in service on or after January 1, 2020, only the expense
deduction allowed under Section 179 of the Internal Revenue Code in effect
on December 31, 2003, exclusive of any amendments made subsequent to that
date, shall be allowed, except that the phase -out provisions of Section 179 of
the Internal Revenue Code, limiting the qualifying investment in property,
shall not apply.