35 Miss. Admin. Code Pt. III, Subpt. 5, Ch. 04 — Depreciation

100 Reasonable Allowance. Section 27-7-17(1)(f) provides that a reasonable allowance for the
exhaustion, wear and tear and obsolescence of property used in the trade or business or
property held by the taxpayer for the production of income shall be allowed as a
depreciation deduction. The allowance is that amount which should be set aside for the
taxable year in accordance with a consistent plan, so that the aggregate of the amounts set
aside will equal the cost or other basis of the property. The allowance shall not reflect
amounts representing a mere reduction in market value. Mississippi will follow Federal
depreciation guidelines as are not deemed contrary to the context and intent of Mississippi
Law.
101 The first year thirty -percent (30%) "bonus" depreciation as set forth in the Federal "Job
Creation and Worker Assistance Act of 2002", H.R. 3090, does not constitute a reasonable
allowance for the exhaustion, wear, and tear and obsolescence of the property in regard to
which it is taken. This thirty -percent (30%) "bonus" depreciation is therefore not an
allowable deduction for depreciation under Section 27 -7-17(1)(f). Mississippi will not
follow the Federal guidelines in regard to this "bonus" depreciation since such "bonus"
depreciation is contrary to the context and intent of Mississippi Law. If such "bonus"
depreciation is used for federal income tax reporting purposes, the tax basis of property will
be different for Federal and State until such property is fully depreciated.

# 1.

If such "bonus" depreciation is used for federal income tax reporting, each year an
adjustment must be made for reporting depreciation to this State so as to reflect an
amount of depreciation that would have otherwise been allowed using Federal
depreciation guidelines other than that contained in H.R.3090 "Job Creation and
Worker Assistance Act of 2002."

# 2.

If it is determined "bonus" depreciation was taken in any year and the proper State
adjustment was not made in that same year, all allowances for depreciation will be
denied on all tax returns that are within the statute of limitations until there is a full
recovery to this State of excess depreciation deductions. When the Commissioner
makes such adjustment, there shall be assessed, in addition to interest, all penalties
on any underpayment of income tax to the extent provided by law.
102 Mississippi does not recognize the Federal tax credit allowed for qualified depreciable
property acquired and placed in service during the tax year and does not require the
taxpayer's basis in the property be reduced by 50% of the investment tax credit. This affects
the computation of gain or loss upon disposition of the asset. In order for a taxpayer to
maintain the same basis in property for both Federal and state purposes, for property placed
in service after 1982, the taxpayer's basis in the property may be reduced by 50% of the
investment tax credit as additional depreciation for Mississippi income tax purposes in the
year the ITC is taken.
103 A taxpayer may elect to treat the cost of any Internal Revenue Code Section 179 property,
which is not chargeable to a capital account as an expense. Cost so treated shall be allowed
as a deduction for the taxable year in which the Section 179 property is placed in service. In
determining the amount of allowable expense deduction in any taxable year, the
Commissioner will follow Federal Rules, Regulations and Revenue Procedures issued
under Section 179, Internal Revenue Code as are deemed not contrary to the context and
intent of Mississippi Law.
104 (Reserved)
105 (Reserved)