The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27), which President Bush signed on May 28, 2003, amended I.R.C. 179 to increase the maximum dollar amount of the deduction from $25,000 to $100,000 and to increase the investment limitation from $200,000 to $400,000. The bill also allows certain off-the-shelf computer software that is depreciable over 3 years under I.R.C. 168(f)(1)(A) to be expensed under I.R.C. 179. However, Arizona has not adopted the changes made by P.L. 108-27. Therefore, for Arizona income tax purposes, you must figure the I.R.C. 179 expense deduction and any related depreciation under the Internal Revenue Code in effect on January 1, 2003 rather than under P.L. 108-27.

The easiest way to compute your I.R.C. 179 expense under the Internal Revenue Code in effect on January 1, 2003, is to complete a modified 2002 federal Form 4562. Modify the 2002 federal Form 4562 by changing the amount on line 1 from $24,000 to $25,000 (unless a higher amount is allowed for qualified zone property).

When completing the modified 2002 federal Form 4562:

1. Be sure to compute depreciation for assets for which you cannot take an I.R.C. 179 expense deduction. However, do not compute depreciation for any asset owned by a flow-through entity (like a partnership or S corporation). Compute depreciation using the depreciation method for that class of property.



2. If you have I.R.C. 179 expense from a flow-through entity that does business in Arizona, that entity will give you a modified I.R.C. 179 expense amount to use for Arizona purposes. Use that amount when completing the modified 2002 Form 4562.

Once you have completed the modified 2002 federal Form 4562 do the following:

1. If the amount of I.R.C. 179 expense allowed on the Arizona return is the same as the amount of I.R.C. 179 expense allowed on the federal return do not enter any amount here.



2. If the amount of I.R.C. 179 expense allowed on the Arizona return is less than the amount of I.R.C. 179 expense allowed on the federal return, subtract the amount allowed for Arizona purposes from the amount allowed for federal purposes. Enter the difference as an addition to income here.



3. If you computed depreciation for an asset for which I.R.C. 179 expense deduction was not allowed, see the instructions on subtractions.

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