Sec. 19-8.5. Optional depreciation

Tax Law, §§ 1453(i), 1453-A

(a) For taxable years beginning on or after January 1, 1964, a taxpayer is provided an option to elect to deduct from allocated entire net income an amount not to exceed twice the amount of Federal depreciation on certain newly acquired depreciable property. Such deduction is allowed only upon the condition that entire net income be computed without any deduction for depreciation or amortization of qualified property. The total depreciation deduction allowed under articles 9-B, 9-C and 32 of the Tax Law in any taxable year or years on each item of qualified property may not exceed the cost or other basis of the property described in paragraph (b)(5) of this section.

(b) For purposes of this section, the term qualified property means tangible property which:

(1) is depreciable pursuant to section 167 of the Internal Revenue Code;

(2) has a situs in New York State;

(3) is used in the taxpayer's trade or business;

(4) the original use of which commenced with the taxpayer, commenced in New York State and commenced after December 31, 1963; and

(5) is acquired by purchase as defined in section 179(d) of the Internal Revenue Code, or was constructed, reconstructed or erected after December 31, 1963, pursuant to a contract which was, on or before December 31, 1967, and at all times thereafter, binding on the taxpayer; or property, the physical construction, reconstruction or erection of which began on or before December 31, 1967, which was completed on or before December 31, 1969.

For any taxable year beginning on or after January 1, 1968, a taxpayer is not allowed a deduction under subdivision (a) of this section with respect to tangible personal property leased by it to any other person or corporation. For purposes of the preceding sentence, any contract or agreement to lease or rent or for a license to use such property is considered a lease.

(c) If the deduction allowable for any taxable year exceeds the taxpayer's entire net income allocated to New York State, the excess may be carried over to the following taxable year or years. The taxpayer's entire net income allocated to New York State must be reduced to zero before any allowance of a carry-over of any unused deduction under this section. If a carry-over under this provision is claimed, complete details of the computation must be submitted with the return.

(d) In any taxable year when property, on which depreciation under this section has been allowed, is sold or otherwise disposed of, entire net income before allocation must be adjusted by adding the Federal loss or subtracting the Federal gain resulting from such sale or disposition. The New York State gain resulting from such sale or disposition must be added to entire net income allocated to New York State. If a New York State loss results from such sale or disposition, it is subtracted from entire net income allocated to New York State. To determine the basis of the property, in computing the gain or loss for purposes of article 32 of the Tax Law, the sum of the amounts allowed as depreciation under this section, for all taxable years from the year of acquisition to and including the year of the sale or other disposition, is subtracted from the original Federal cost or other basis. No loss shall be recognized with respect to a sale or other disposition to a person whose acquisition thereof is not a purchase as defined in section 179(d) of the Internal Revenue Code. A sale or other disposition of qualified property includes any transfer or exchange, without regard to whether a gain or loss from the transaction is recognized for Federal income tax purposes. A disposition of qualified property includes:

(1) a sale of the property;

(2) a liquidation other than as part of a statutory merger or consolidation;

(3) a legal dissolution of the taxpayer;

(4) a trade-in of the property;

(5) a gift of the property;

(6) transfer upon foreclosure of a security interest in the property;

(7) retirement of the property before expiration of its useful life;

(8) condemnation of the property;

(9) loss of the property due to fire, theft, storm or other casualty; and

(10) transfer of the property to a corporation not taxable under article 32 of the Tax Law.

(e) If the election provided in subdivision (a) of this section is made when computing entire net income, alternative entire net income must also be computed without any deduction for depreciation or amortization of qualified property. The deduction from allocated alternative entire net income for the taxable year is the same as the deduction from allocated entire net income for the taxable year.