103 KAR 15:080.

Depreciation; calculation and recognition of ''transition amount''.

 

      RELATES TO: KRS

141.0101

      STATUTORY

AUTHORITY: KRS 131.130(1), 141.050(4)

      NECESSITY,

FUNCTION, AND CONFORMITY: This administrative regulation explains the

requirements for and computation of the "transition amount"

adjustment, how it relates to previous depreciation deductions, and how to

report the "transition amount" on tax returns.

 

      Section 1.

Determining and Reporting the Transition Amount. (1) The transition amount

shall be calculated and reported on Form 762TS, Kentucky Depreciation

Transition Schedule. This form shall be used for the income tax return filed

for the first taxable year beginning after December 31, 1993 and will be

available after December 31, 1994.

      (2) The tax

treatment of the transition amount shall be determined by the activity from

which it was derived. The transition amount related to activities subject to

passive activity and at-risk rules shall be included when computing income for

the purpose of determining passive loss and at-risk limitations.

      (3) For

corporations, the transition amount shall not include amounts of Accelerated

Cost Recovery System (ACRS) depreciation not allowed as a deduction in

determining Kentucky net income for tax years beginning before July 1, 1984.

      (4) Election.

      (a) The election

under KRS 141.0101(14) shall be made with the filing of the income tax return

for the first taxable year beginning after December 31, 1993.

      (b) The election

shall be made by checking the appropriate box on Form 762TS.

      (c) A taxpayer's

election to report the transition amount over four (4) years shall be

irrevocable.

 

      Section 2.

Accelerated Recognition of Transition Amount Not Allowed. If the four (4) year

period provided in KRS 141.0101(14) applies, the annual recognition of

twenty-five (25) percent of the transition amount shall not be accelerated by:

      (1) The

disposition of any asset prior to expiration of the four (4) year period;

      (2) The death or

move from Kentucky of an individual taxpayer prior to expiration of the four

(4) year period; or

      (3) The

withdrawal or dissolution of a corporation prior to expiration of the four (4)

year period.

 

      Section 3.

Examples. (1) The aggregate adjusted federal basis of transition property is

$40,000. The aggregate adjusted Kentucky basis of transition property is

$50,000. The transition amount is $10,000. This entire amount may be deducted

from Kentucky gross income in the first taxable year beginning after December

31, 1993 or reported over four (4) years by electing the provisions contained

in Section 2 of this administrative regulation and deducting $2,500 for that

taxable year and each of the three (3) succeeding taxable years.

      (2) The

aggregate adjusted federal basis of transition property is $40,000. The

aggregate adjusted Kentucky basis of transition property is $35,000. The

transition amount is $5,000. This entire amount may be reported as an increase

in Kentucky gross income in the first taxable year beginning after December 31,

1993 or reported over four (4) years by electing under Section 2 of this

administrative regulation to include $1,250 in gross income for that taxable

year and each of the three (3) succeeding taxable years.

      (3) The

aggregate adjusted federal basis of transition property is $250,000. The

aggregate adjusted Kentucky basis of transition property is $400,000. The

transition amount is $150,000. This amount shall be deducted from Kentucky

gross income at the rate of $37,500 for the first taxable year beginning after

December 31, 1993 and each of the three (3) succeeding taxable years.

      (4) The

aggregate adjusted federal basis of transition property is $400,000. The

aggregate adjusted Kentucky basis of transition property is $550,000. The

transition amount is $150,000. The taxpayer sells all transition property in

1995. The transition amount shall be deducted from Kentucky gross income at the

rate of $37,500 for the first taxable year beginning after December 31, 1993

and each of the three (3) succeeding taxable years without regard to the

disposition of the assets.

 

      Section 4.

Incorporation by Reference. (1) "Kentucky Depreciation Transition Schedule

(9-94)", Form 762TS, is incorporated by reference.

      (2) This form

may be inspected, copied, or obtained at the Kentucky Revenue Cabinet, 200 Fair

Oaks Lane, Frankfort, Kentucky 40620, or at any Kentucky Revenue Cabinet

Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m. (21 Ky.R.

1586; Am. 1880; eff. 2-10-95.)