2.300
2.300 Accelerated Deductions from Gross Income
Tax Expenditure Name
Tax Expenditure Number
FY2021
FY2022
FY2023
FY2024
FY2025
Accelerated Deductions from Gross Income
2.300
173.4
160.5
291.5
236.8
180.1
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Tax Item
Description
Origin
FY2025
2.301
Modified Accelerated Cost Recovery System on Rental Housing
Modified Accelerated Cost Recovery System on Rental Housing
An essential characteristic of a business income tax is that it is imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of buildings, which have a useful life measured in years. Rather, the cost of such property must be capitalized and deducted as depreciation expense over a number of years based on the property's useful life. Traditional financial accounting rules required the cost of buildings to be recovered pro rata over a period intended to approximate the property's anticipated actual useful life. This depreciation schedule is referred to as the "straight-line" method. The use of straight-line depreciation over a 40-year useful life to recover cost of buildings is considered to conform to traditional financial accounting rules.
The Internal Revenue Code (the "Code") allows landlords and investors to determine their depreciation deduction for new and used rental housing using an accelerated method of depreciation. Rental housing placed in service after 1986 is depreciated on a straight-line basis over a 27.5-year period rather than the 40-year recovery period used under traditional financial accounting rules. Rental housing placed in service before 1986 was depreciable over shorter periods generally 19 or 20 years and instead of straight-line depreciation the 175% declining balance method was permitted.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction for depreciation. As a result Massachusetts conforms to the use of straight-line depreciation over a 27.5-year accelerated recovery period for residential rental property. This allows for a larger depreciation deduction in the earlier years of the useful life of residential rental property than would be available under traditional accounting concepts. However the depreciation deduction is smaller in the later years. The net result is a temporary reduction or deferral or tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers. The deferral constitutes a Massachusetts tax expenditure.
The Internal Revenue Code (the "Code") allows landlords and investors to determine their depreciation deduction for new and used rental housing using an accelerated method of depreciation. Rental housing placed in service after 1986 is depreciated on a straight-line basis over a 27.5-year period rather than the 40-year recovery period used under traditional financial accounting rules. Rental housing placed in service before 1986 was depreciable over shorter periods generally 19 or 20 years and instead of straight-line depreciation the 175% declining balance method was permitted.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction for depreciation. As a result Massachusetts conforms to the use of straight-line depreciation over a 27.5-year accelerated recovery period for residential rental property. This allows for a larger depreciation deduction in the earlier years of the useful life of residential rental property than would be available under traditional accounting concepts. However the depreciation deduction is smaller in the later years. The net result is a temporary reduction or deferral or tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers. The deferral constitutes a Massachusetts tax expenditure.
7.5
2.303
Expenditures to remove architectural and transportation barriers to the handicapped and elderly
Expenditures to remove architectural and transportation barriers to the handicapped and elderly
Massachusetts conforms to Internal Revenue Code ("Code") § 190, which allows taxpayers to elect an immediate deduction of up to $15,000 of expenses incurred in removing architectural or transportation barriers to the handicapped and elderly. The cost of an improvement to a business asset is normally a capital expense, which would normally have to be capitalized and deducted over a period of years. The accelerated deduction applies to the first $15,000 of expenses. Costs over that amount must be capitalized and deducted under the generally applicable depreciation schedules set out in the Code.
Expenses eligible for the deduction include costs incurred in making a building or public transportation vehicle more accessible to people with disabilities and the elderly. Examples with regard to buildings include installing ramps widening doors modifying restrooms and lowering counters to accommodate customers in wheelchairs. Examples with regard to vehicles include installing lifts for wheelchairs and modifying signage and public address systems to accommodate the visually or hearing impaired. The deduction is not available for costs incurred in completely renovating a building or vehicle or to the cost of replacing depreciable property in the normal course of business.
The immediate deduction of eligible expenses results in a deferral of tax. The deferral constitutes a Massachusetts tax expenditure.
Expenses eligible for the deduction include costs incurred in making a building or public transportation vehicle more accessible to people with disabilities and the elderly. Examples with regard to buildings include installing ramps widening doors modifying restrooms and lowering counters to accommodate customers in wheelchairs. Examples with regard to vehicles include installing lifts for wheelchairs and modifying signage and public address systems to accommodate the visually or hearing impaired. The deduction is not available for costs incurred in completely renovating a building or vehicle or to the cost of replacing depreciable property in the normal course of business.
The immediate deduction of eligible expenses results in a deferral of tax. The deferral constitutes a Massachusetts tax expenditure.
IRC §190; M.G.L. c. 63, §30.4
0.5
2.304
Election to Deduct and Amortize Business Start-up Costs
Election to Deduct and Amortize Business Start-up Costs
Taxpayers who pay or incur business start-up costs and who subsequently enter the trade or business can elect to expense to the lesser of the amount of start-up expenditures with respect to the active trade or business or $5,000 of the costs. The balance of start-up expenses, if any, is amortized over a period of 180 months, starting with the month in which the business begins. The election must be made no later than the date (including extensions) for filing the return for the tax year in which the business begins or is acquired. A taxpayer is deemed to have made an election to deduct and amortize start-up expenses for the tax year in which the active trade or business to which the expenses relate begins. A taxpayer who does not make the election must capitalize the expenses.
0.5
2.305
Modified Accelerated Cost Recovery System for Equipment
Modified Accelerated Cost Recovery System for Equipment
An essential characteristic of a business income tax is that it is imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of durable business property that has a useful life measured in years. Rather, the cost of such property must be capitalized and deducted as depreciation expense over a number of years based on the property's useful life. Traditional financial accounting rules required the cost of depreciable tangible personal property to be recovered pro rata over a period intended to approximate the property's anticipated actual useful life. This depreciation schedule is referred to as the "straight-line" method.
The Internal Revenue Code (the "Code") follows the general approach to cost recovery described above by providing depreciation schedules applicable to different classes of property. However the Code permits taxpayers to use depreciation schedules that are more favorable than straight-line depreciation. Specifically the Code adopts the Modified Accelerated Cost Recovery System (MACRS) which allows accelerated cost recovery over a period that is shorter than the property's anticipated useful life and allows more of the cost of the property to be deducted in the first few years of an asset's life and relatively less later. In addition to such accelerated depreciation MACRS allows taxpayers to elect to use an alternative method that conforms more closely to traditional financial accounting rules by requiring the use of straight-line depreciation.
Massachusetts conforms to MACRS for purposes of determining taxable net income under the corporate excise and taxable income under the personal income tax. The state tax expenditure is a result of this conformity. Allowing accelerated depreciation under MACRS is a tax expenditure because it allows a larger depreciation deduction earlier in an asset's life than would be allowed under alternative depreciation. To the extent that taxpayers employ accelerated depreciation instead of alternative depreciation a temporary reduction of tax results. The reduction is temporary because the depreciation deduction is smaller in the later years of an asset's useful life. The temporary deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
The Internal Revenue Code (the "Code") follows the general approach to cost recovery described above by providing depreciation schedules applicable to different classes of property. However the Code permits taxpayers to use depreciation schedules that are more favorable than straight-line depreciation. Specifically the Code adopts the Modified Accelerated Cost Recovery System (MACRS) which allows accelerated cost recovery over a period that is shorter than the property's anticipated useful life and allows more of the cost of the property to be deducted in the first few years of an asset's life and relatively less later. In addition to such accelerated depreciation MACRS allows taxpayers to elect to use an alternative method that conforms more closely to traditional financial accounting rules by requiring the use of straight-line depreciation.
Massachusetts conforms to MACRS for purposes of determining taxable net income under the corporate excise and taxable income under the personal income tax. The state tax expenditure is a result of this conformity. Allowing accelerated depreciation under MACRS is a tax expenditure because it allows a larger depreciation deduction earlier in an asset's life than would be allowed under alternative depreciation. To the extent that taxpayers employ accelerated depreciation instead of alternative depreciation a temporary reduction of tax results. The reduction is temporary because the depreciation deduction is smaller in the later years of an asset's useful life. The temporary deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
128.2
2.306
Expense Deduction for Excess First-Year Business Assets
Expense Deduction for Excess First-Year Business Assets
An essential characteristic of a business income tax is that it is imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of durable business property that has a useful life measured in years. Rather, the cost of such property must be capitalized and deducted as depreciation expense over a number of years based on the property's useful life. The Internal Revenue Code (the "Code") adopts this approach in providing depreciation schedules applicable to different classes of property. The net income measure of the Massachusetts corporate excise and the Massachusetts personal income tax both adopt the federal depreciation rules, with modifications not relevant to this report.
Code § 179 allows taxpayers an election to immediately deduct in a given year 100% of the cost of depreciable property placed in service in that year up to a limit of $1 million. If the taxpayer's asset purchases for the year exceed $2.5 million the deduction is reduced on a dollar-for-dollar basis for each additional dollar spent. Both these thresholds are adjusted annually for inflation. The Code § 179 deduction is allowed in addition to the allowable depreciation deduction but the basis for depreciation is reduced by the amount of the deduction. Massachusetts conforms to the Code § 179 deduction for both corporate excise net income tax and personal income tax purposes. The Massachusetts tax expenditure is a result of this conformity. The Code § 179 deduction is a tax expenditure because it allows the cost of eligible assets to be deducted earlier in an asset's useful life resulting in a temporary reduction of tax. The tax reduction is temporary because it reduces the allowable depreciation deduction later in the asset's useful life. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
Code § 179 allows taxpayers an election to immediately deduct in a given year 100% of the cost of depreciable property placed in service in that year up to a limit of $1 million. If the taxpayer's asset purchases for the year exceed $2.5 million the deduction is reduced on a dollar-for-dollar basis for each additional dollar spent. Both these thresholds are adjusted annually for inflation. The Code § 179 deduction is allowed in addition to the allowable depreciation deduction but the basis for depreciation is reduced by the amount of the deduction. Massachusetts conforms to the Code § 179 deduction for both corporate excise net income tax and personal income tax purposes. The Massachusetts tax expenditure is a result of this conformity. The Code § 179 deduction is a tax expenditure because it allows the cost of eligible assets to be deducted earlier in an asset's useful life resulting in a temporary reduction of tax. The tax reduction is temporary because it reduces the allowable depreciation deduction later in the asset's useful life. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
36.4
2.307
Modified Accelerated Depreciation on Buildings (other than Rental Housing)
Modified Accelerated Depreciation on Buildings (other than Rental Housing)
An essential characteristic of a business income tax is that it is imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of buildings, which have a useful life measured in years. Rather, the cost of such property must be capitalized and deducted as depreciation expense over a number of years based on the property's useful life. Traditional financial accounting rules required the cost of buildings to be recovered pro rata over a period intended to approximate the property's anticipated actual useful life. This depreciation schedule is referred to as the "straight-line" method.
The Internal Revenue Code (the "Code") follows the general approach to cost recovery described above by providing depreciation schedules applicable to different classes of property. Since 1993 the Code has allowed nonresidential buildings to be depreciated using straight-line depreciation over 39 years. The Code refers to this method as "accelerated". The Code also provides an option to use straight-line depreciation over a period of 40 years. This method is considered to conform to traditional financial accounting rules. The benefit of using the 39-year recovery period instead of the 40-year recovery period is a federal tax expenditure to which Massachusetts conforms.
The expenditure also reflects more favorable federal depreciation rules in effect for nonresidential buildings prior to 1993. These rules allowed a larger depreciation deduction over a shorter recovery period than the current Code rules. For example a building placed in service in 1992 could be depreciated over 31.5 years. Some of buildings placed in service prior to 1993 are still in service and continue to be depreciated under these historical rules. For such legacy buildings the Code allows more of the cost of the property to be deducted than would be allowed under the current depreciation rules. This legacy effect is also considered to be part of the federal tax expenditure.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction for depreciation. Specifically Massachusetts allows the use of the 39-year accelerated recovery period for nonresidential buildings under the current Code and adopts the favorable historic rules applicable to legacy buildings under the Code. These rules allow a larger depreciation deduction in the earlier years of the useful life of nonresidential buildings than would be available under traditional accounting concepts. However the depreciation deduction is smaller in the later years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
The Internal Revenue Code (the "Code") follows the general approach to cost recovery described above by providing depreciation schedules applicable to different classes of property. Since 1993 the Code has allowed nonresidential buildings to be depreciated using straight-line depreciation over 39 years. The Code refers to this method as "accelerated". The Code also provides an option to use straight-line depreciation over a period of 40 years. This method is considered to conform to traditional financial accounting rules. The benefit of using the 39-year recovery period instead of the 40-year recovery period is a federal tax expenditure to which Massachusetts conforms.
The expenditure also reflects more favorable federal depreciation rules in effect for nonresidential buildings prior to 1993. These rules allowed a larger depreciation deduction over a shorter recovery period than the current Code rules. For example a building placed in service in 1992 could be depreciated over 31.5 years. Some of buildings placed in service prior to 1993 are still in service and continue to be depreciated under these historical rules. For such legacy buildings the Code allows more of the cost of the property to be deducted than would be allowed under the current depreciation rules. This legacy effect is also considered to be part of the federal tax expenditure.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction for depreciation. Specifically Massachusetts allows the use of the 39-year accelerated recovery period for nonresidential buildings under the current Code and adopts the favorable historic rules applicable to legacy buildings under the Code. These rules allow a larger depreciation deduction in the earlier years of the useful life of nonresidential buildings than would be available under traditional accounting concepts. However the depreciation deduction is smaller in the later years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to taxpayers.
3.2
2.308
Expensing Research and Experimental Expenditures in One Year
Expensing Research and Experimental Expenditures in One Year
Taxpayers may elect to treat research or experimental expenditures incurred in connection with a trade or business as currently deductible expenses, and not chargeable to their capital account. Under generally accepted accounting principles, at least some of these expenses would otherwise be treated as capital expenditures and depreciated or amortized over a period of years. The current deduction constitutes a tax expenditure, resulting in a deferral of tax similar to an interest-free loan
0.0
2.309
Expensing Exploration and Development Costs
Expensing Exploration and Development Costs
Certain capital costs incurred in bringing a known mineral deposit into production are deductible in the year incurred. A portion of domestic mining exploration costs can also be expensed, although they will be recaptured if the mine reaches the production stage. Certain intangible drilling and development costs of domestic oil, gas, and geothermal wells are deductible when made, but to a certain extent may be recaptured upon disposition of oil, gas, or geothermal property to which they are properly chargeable. The immediate expensing of these costs, which would otherwise be capitalized and recovered through depreciation or through depletion as the natural resource is removed from the ground, results in a deferral of tax or an interest-free loan.
IRC §§193, 263(c), 616, 617; M.G.L. c. 63, §30.4
0.2
2.311
Five-Year Amortization of Pollution Control Facilities
Five-Year Amortization of Pollution Control Facilities
Taxpayers may elect to amortize the cost of a certified pollution control facility over a five-year period, allowing for accelerated recovery of these costs. Accelerated recovery is only available for pollution control facilities subsequently added to plants that were in operation before 1976. The excess of accelerated recovery over depreciation deductions otherwise allowable results in a deferral of tax or an interest-free loan.
2.7
2.312
Expensing of Alternative Energy Units
Expensing of Alternative Energy Units
Massachusetts General Laws chapter 63, § 38H, adopted in 1976, allows a corporation to deduct "expenditures paid or incurred during the taxable year with respect to the installation of any solar or wind powered climatic control unit and any solar or wind powered water heating unit, or any other type of unit or system powered thereby." Without this provision, such costs would have to be capitalized and depreciated. To qualify for the deduction, the equipment must be located in Massachusetts and used exclusively in the trade or business of the corporation. The statute provides that equipment must meet certain technical standards that are required to be set by a now-defunct state agency � the Bureau of Building Construction.
In the past a corporation was required to submit technical documentation regarding the equipment to the Bureau of Building Construction for certification of the deduction. The Bureau of Building Construction was abolished in 1980 and was absorbed by the Division of Capital Planning and Operations ("DCPO") which was subsequently renamed the Division of Capital Asset Management & Maintenance ("DCAMM"). There is now no certification process in place and no current published guidance in effect.
DOR has received few inquiries regarding the deduction. One of the reasons for this may be that there are other tax benefits available to corporations with respect to alternative energy equipment that are generally more favorable such as expensing under Internal Revenue Code §§ 179 179D and depreciation under Code §§ 167 168. Further as noted no state agency is currently responsible for issuing certification standards guidelines or regulations defining eligible equipment or corporations seeking to take the § 38H deduction.
In the past a corporation was required to submit technical documentation regarding the equipment to the Bureau of Building Construction for certification of the deduction. The Bureau of Building Construction was abolished in 1980 and was absorbed by the Division of Capital Planning and Operations ("DCPO") which was subsequently renamed the Division of Capital Asset Management & Maintenance ("DCAMM"). There is now no certification process in place and no current published guidance in effect.
DOR has received few inquiries regarding the deduction. One of the reasons for this may be that there are other tax benefits available to corporations with respect to alternative energy equipment that are generally more favorable such as expensing under Internal Revenue Code §§ 179 179D and depreciation under Code §§ 167 168. Further as noted no state agency is currently responsible for issuing certification standards guidelines or regulations defining eligible equipment or corporations seeking to take the § 38H deduction.
M.G.L. c. 63, §38H
Not Active
2.313
Seven-Year Amortization for Reforestation
Seven-Year Amortization for Reforestation
Taxpayers may elect to amortize reforestation costs for qualified timber property over a seven-year period. In the absence of this special provision, these costs would be capitalized and depreciated over a longer period or recovered when the timber is sold. The accelerated cost recovery results in a deferral of tax or an interest-free loan.
0.6
2.314
Expensing of Certain Capital Outlays of Farmers
Expensing of Certain Capital Outlays of Farmers
Income tax or corporate excise as applied to business activity is typically imposed on the net of business receipts over deductible business expenses. However, an immediate deduction is generally not allowed for the full cost of items that will be used over multiple years. Rather, the cost of such items must be capitalized and deducted as depreciation or amortization expenses over several years, based on the item's useful life. Code §§ 175 and 180 provide exceptions to the capitalization requirement for expenses incurred by farmers for (i) soil and water conservation expenses and (ii) fertilizer costs, respectively.
Code § 175 allows a deduction for soil and water conservation expenses in the year they are incurred even if the conservation measures provide a benefit over a number of years. The deduction cannot exceed 25% of a taxpayer's gross income derived from farming. To qualify for an immediate deduction expenses must be consistent with a plan approved by the federal Department of Agriculture or a similar state agency. Eligible expenses include amounts paid for (i) the treatment or moving of earth including leveling grading and terracing (ii) contour furrowing (ii) the construction control and protection of diversion channels drainage ditches earthen dams watercourses outlets and ponds (iv) the eradication of brush (v) the planting of windbreaks and (vi) expenses incurred in preserving endangered animal species under a recovery plan approved pursuant to the federal Endangered Species Act of 1973.
Code § 180 allows the immediate deduction of fertilizer costs even if the fertilizer's effect lasts for multiple years. There is no limit on the amount of the deduction and no requirement that the expenses be approved by any federal or state agency.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction allowed to farmers for soil and water conservation expenses and fertilizer costs. Thus Massachusetts conforms to the federal provisions allowing farmers to deduct such expenses immediately rather than recovering the expense over a period of years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to farmers. The deferral constitutes a Massachusetts tax expenditure.
Code § 175 allows a deduction for soil and water conservation expenses in the year they are incurred even if the conservation measures provide a benefit over a number of years. The deduction cannot exceed 25% of a taxpayer's gross income derived from farming. To qualify for an immediate deduction expenses must be consistent with a plan approved by the federal Department of Agriculture or a similar state agency. Eligible expenses include amounts paid for (i) the treatment or moving of earth including leveling grading and terracing (ii) contour furrowing (ii) the construction control and protection of diversion channels drainage ditches earthen dams watercourses outlets and ponds (iv) the eradication of brush (v) the planting of windbreaks and (vi) expenses incurred in preserving endangered animal species under a recovery plan approved pursuant to the federal Endangered Species Act of 1973.
Code § 180 allows the immediate deduction of fertilizer costs even if the fertilizer's effect lasts for multiple years. There is no limit on the amount of the deduction and no requirement that the expenses be approved by any federal or state agency.
Massachusetts generally adopts the business expense deductions allowed under the Code including the federal deduction allowed to farmers for soil and water conservation expenses and fertilizer costs. Thus Massachusetts conforms to the federal provisions allowing farmers to deduct such expenses immediately rather than recovering the expense over a period of years. The net result is a temporary reduction or deferral of tax. The deferral of tax can be viewed as an interest-free loan from the Commonwealth to farmers. The deferral constitutes a Massachusetts tax expenditure.
IRC §§ 175, 180 and MGL c. 63, § 30
0.1
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