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.)