Accelerated Deductions from Gross Income
| TAX EXPENDITURE | FY2012 | FY2013 | FY2014 |
|---|---|---|---|
| Accelerated Deductions from Gross Income | 102.6 | 100.8 | 98.1 |
| item | description | amount |
|---|---|---|
| Accelerated Deductions from Gross Income | 98.1 | |
| 1.301 |
Modified Accelerated Depreciation on Rental Housing
Landlords and investors in rental housing may use accelerated methods of depreciation for new and used rental housing. Rental housing placed in service after 1988 is depreciated on a straight-line basis over a 27.5-year period. Rental housing placed in service before 1988 was depreciable over shorter periods (generally 19 or 20 years), and, instead of straight-line depreciation, the 175% declining balance method was permitted. Straight-line depreciation over the property's expected useful life is the generally accepted method for recovering the cost of building structures. The excess of allowable depreciation over such generally accepted depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan. Origin: IRC S. 168(b) Estimate: $20.4 |
20.4 |
| 1.303 |
Modified Accelerated Depreciation on Buildings (other than Rental Housing)
Individuals or investors in a trade or business may use accelerated methods of depreciation for buildings. Construction may be depreciated under methods that produce faster depreciation than economic depreciation. The precise rates have been changed repeatedly in recent years as the result of revisions in the federal tax code. Structures (other than rental housing) placed in service after 1987 are depreciated on a straight-line basis over a 31.5-year life. The excess of accelerated depreciation over economic depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan. Origin: IRC S. 167(j) and 168(b) Estimate: $6.1 |
6.1 |
| 1.304 |
Modified Accelerated Cost Recovery System (MACRS) for Equipment
For depreciable tangible personal property placed in service after 1980, capital costs may be recovered using the Accelerated Cost Recovery System (ACRS), which applies accelerated methods of depreciation over set recovery periods. For property placed in service after 1987, Massachusetts has adopted the Modified Accelerated Cost Recovery System (MACRS), which generally uses double declining balance depreciation over specified periods that are substantially shorter than actual useful lives (200% declining balance for 3-, 5-, 7- and 10-year recovery property and 150% declining balance for 15- and 20-year property). The excess of accelerated depreciation over economic depreciation is a tax expenditure, resulting in a deferral of tax or an interest-free loan. Origin: IRC S. 168 Estimate: $57.5 |
57.5 |
| 1.305 |
Deduction for Excess First-Year Depreciation
Individuals or investors in a trade or business may elect to expense certain business assets purchased during the taxable year. As of 2012, the total deduction cannot exceed $139,000. For taxpayers whose investment in eligible assets exceeds $560,000 in the year, the ceiling is reduced by $1 for each dollar of investment above $560,000. Any remaining cost must be depreciated according to MACRS, as described in the preceding item. The immediate deduction is a tax expenditure, resulting in a deferral of tax or an interest-free loan. Origin: IRC S. 179 Estimate: $8.5 |
8.5 |
| 1.306 |
Election to Deduct and Amortize Business Start-up Costs
Individuals or investors in a trade or business may elect to treat business start-up expenditures as deferred expenses and amortize them over a period of not less than 180 months, starting with the month in which the business begins. For a more detailed description of this tax expenditure, see corporate excise item 2.304. Origin: IRC S. 195 Estimate: $4.1 |
4.1 |
| 1.308 |
Expensing Exploration and Development Costs
Individuals or investors in extractive industries (mining or drilling natural resources) may take an immediate deduction for certain exploration and development costs. For a more detailed description of this tax expenditure, see corporate excise item 2.309; the provisions for individual taxpayers are somewhat more liberal than those that apply to corporations. Origin: IRC S. 263(c), 616 and 617 in effect January 1, 1985 Estimate: Negligible |
Negligible |
| 1.309 |
Expensing Research and Experimental Expenditures in One Year
Individuals or investors in a trade or business may take an immediate deduction for research and experimental expenditures. For a more detailed description of this tax expenditure, see corporate excise item 2.308. Origin: IRC S. 174 Estimate: $1.2 |
1.2 |
| 1.310 |
Five-Year Amortization of Pollution Control Facilities
Individuals or investors in a trade or business may elect to amortize the cost of a certified pollution control facility over a five-year period. For a more detailed description of this tax expenditure, see corporate excise item 2.311. Origin: IRC S. 169 Estimate: N.A. |
N.A. |
| 1.311 |
Seven-Year Amortization for Reforestation
Individuals or investors in the forestry business may amortize the costs of reforestation over a seven-year period. For a more detailed description of this tax expenditure, see corporate excise item 2.311. Origin: IRC S. 194 Estimate: N.A. |
N.A. |
| 1.312 |
Expensing Certain Capital Outlays of Farmers
Farmers may use certain favorable accounting rules. For instance, they may use the cash basis method of accounting and may deduct up to 50% of non-paid farming expenses as current expenses even though these expenditures are for inventories on hand at the end of the year. They also may deduct certain capital outlays, such as expenses for fertilizers and soil and water conservation if they are consistent with a federal- or state-approved plan. Generally, these special rules are not available to farming corporations and syndicates. Origin: IRC S. 175, 180 and 182 and Reg. S. 1.61-4, 1.162-12 and 1.471-6 Estimate: $0.3 |
0.3 |
Key:
| ORIGIN | |
| IRC | Federal Internal Revenue Code (26 U.S.C.) |
|---|---|
| U.S.C | United States Code |
| M.G.L. | Massachusetts General Laws |
| Rev. Rul.; C.B. | Revenue Ruling; Cumulative Bulletin of the U.S. Treasury |
| ESTIMATES | All estimates are in $ millions. |
Footnote(s):
1 1 This item and others citing this endnote cover employee fringe benefits. We accept as standard the following treatment of these benefits: the expense incurred by the employer in providing the benefit is properly deductible as a business expense and the benefit is taxed as compensation to the employee as if the employee had received taxable compensation and then used it to purchase the benefit. Of course, there are problems with this analysis. In some cases, the "benefit" is more a condition of employment than a true benefit. For example, a teacher required to have lunch in the school cafeteria may prefer to eat elsewhere even if the school lunch is free. On the other hand, in many cases the provision of tax-free employee benefits is clearly a substitution for taxable compensation.
2 2 This item and others citing this endnote cover contributory pension plans. The standard tax treatment of these plans is as follows: Component Standard Treatment Contributions: Made out of income that is currently taxed to employees. Investment Income: Taxed to the employee as "earned" income. Distributions from Pension Funds: Tax-free to the extent they are made out of dollars previously taxed to the employees as contributions or investment income. The non-standard treatment of contributions, investment income, or distributions as described in items 1.006, 1.101, 1.104, and 1.402, results in either nontaxation or deferrals of tax.
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