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Arizona law with respect to depreciation was changed. Now, all taxpayers must add the amount of depreciation allowed under I.R.C. § 167(a). Taxpayers must then compute depreciation for Arizona purposes as if bonus depreciation had not been elected for federal purposes. All taxpayers that claim depreciation on the federal return must add that depreciation to Arizona gross income on the Arizona return and then take a subtraction for the allowable Arizona amount. This change was retroactive and applies to taxable years beginning from and after December 31, 1999. This provision will really affect taxpayers that depreciated luxury autos and will allow taxpayers to depreciate luxury autos for which the taxpayer has claimed federal bonus depreciation using the same depreciation rate that would have been allowed if the taxpayer had not claimed bonus depreciation. Affected taxpayers will be able to amend a prior year return to make this adjustment, or as an alternative, the taxpayer may elect to recognize the entire cumulative effect of the retroactive change on the tax return for the first taxable year ending on or after December 31, 2003 (the 2003 return) instead of recognizing the changes on those prior year returns.
Basis Adjustment for Property Sold or Otherwise Disposed of During the Taxable Year A taxpayer may now claim a subtraction to reflect the difference in federal and state basis of bonus depreciation property when that property is sold. This change was also retroactive to taxable years beginning from and after December 31, 1999. A taxpayer may file an amended return to make this adjustment for a prior year, or as an alternative, the taxpayer may elect to recognize the entire cumulative effect of the retroactive change on the tax return for the first taxable year ending on or after December 31, 2003 (the 2003 return) instead of recognizing the changes on those prior year returns. (Note: The practical effect of this is to allow a subtraction for the difference in basis for any asset for which bonus depreciation has been claimed on the federal return.)
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