Income Tax Federal Tax Changes
Updated May 6, 2021
The Georgia General Assembly annually considers updating certain provisions of state tax law in response to federal changes to the Internal Revenue Code (IRC). This year’s IRC update bill (House Bill 265) was signed into law by Governor Kemp on February 24, 2021.
The American Rescue Plan Act (ARPA), which included temporary changes to the taxability of unemployment income at the federal level in addition to a host of other measures, was signed into law on March 11, 2021.
Therefore, the provisions of ARPA have not been adopted and unemployment income remains taxable at the state level and must be included in a taxpayer’s income on his or her Georgia return. Any unemployment income that was excluded on the taxpayer’s federal return should be added back on Georgia Form 500, Schedule 1, line 5.
For taxable years beginning on or after January 1, 2020, except as discussed below, HB 265 adopted the provisions of all federal tax acts (as they relate to the computation of Federal Adjusted Gross Income or Federal Taxable Income for corporations) that were enacted on or before January 1, 2021.
Georgia has adopted the PPP loan forgiveness and the deductibility of the related PPP deductions for all years.
A taxpayer may subtract for Georgia purposes the wages that are disallowed federally if the taxpayer claims the employee retention credit provided by Section 2301 of the Cares Act. The subtraction should be put on the other subtraction line of the subtraction schedule of the applicable return. Cares Act Section 2301(e) provides that rules similar to the rules of section 280C(a) of the Internal Revenue Code apply. Georgia Code Sections 48-7-21(b)(9) and 48-7-27(a)(3)(A) provide a subtraction when the taxpayer takes federal jobs tax credits and the expenses are required to be reduced federally. Georgia Regulation 560-7-7-.05 provides that the term federal jobs tax credit includes those credits that by virtue of Section 280C(a) require the disallowance of a deduction for wages and salaries.
For 2020, Georgia has adopted the increased I.R.C. Section 179 deduction of $1,040,000 as well as the $2,590,000 phaseout. Georgia has not, however, adopted the Section 179 deduction for certain real property (I.R.C. Sections 179(d)(1)(B)(ii)).
Georgia has adopted all of the CARES Act for taxable years beginning on or after January 1, 2019 (including the 2020 year) but did not adopt the revised net operating loss provisions in the CARES Act and the modification to the Code Section 461(l) limitation in the CARES Act. As such:
- For losses incurred in taxable years ending after December 31, 2017, there is no carryback and unlimited carryforward of net operating losses and there is a 2 year carryback for farming losses and there is a 2 year carryback and 20 year carryforward for certain insurance company net operating losses.
- For losses incurred in taxable years beginning on or after January 1, 2018, there is an 80% limitation on the usage of net operating losses (the 80% limitation is based on Georgia taxable net income). The 80% limitation does not apply to certain insurance company net operating losses.
- The I.R.C. Section 461(l) adjustment (limitation on losses for noncorporate taxpayers) is required in the same manner as was required before the CARES Act.
For taxable years beginning on or after January 1, 2018 and before January 1, 2019, Georgia has not adopted any of the 2019 or 2020 federal changes including the federal CARES Act. If an amended federal return is filed due to these federal changes, an amended Georgia return is not required.
The CARES Act included a technical correction for qualified improvement property. It changed the depreciable life of qualified improvement property (QIP) from 39 years to 15 years. As such Federally, qualified improvement property is now also eligible for 100% Bonus Depreciation. For taxable years beginning on or after January 1, 2019, Georgia has adopted this correction as it relates to the 15 year life but Georgia has not adopted bonus depreciation. With respect to previously filed Federal tax return(s), IRS Rev. Proc. 2020-25 allows a taxpayer to either file an automatic accounting method change or amend the previously filed tax return(s). Below are two scenarios which explain what should be done for Georgia purposes if the taxpayer elects the option to file an automatic accounting method change:
- Scenario 1- Assume the following: 1) the 2019 Federal return and Georgia return were filed and the taxpayer did not account for the CARES Act change (used 39 years, etc.); 2) the taxpayer will file Federal Form 3115 with the IRS in 2020 to make the change at the federal level from 39 years to 15 years (they may also elect to take bonus depreciation at the same time); and 3) the taxpayer will make a one-time adjustment on the 2020 federal return. In this case, the taxpayer should attach the Federal Form 3115 to the 2020 Georgia return. The change from 39 years to 15 years would then be automatically accepted and like the Federal, no Georgia approval is necessary. Since the one-time federal adjustment flows through to the Georgia return, no separate adjustment is necessary on the 2020 Georgia return unless bonus depreciation was taken federally. In that case, the bonus depreciation would have to be adjusted accordingly.
- Scenario 2- Assume the 2019 Federal return was filed and the taxpayer did account for the CARES Act change on the Federal return (used 15 years, etc.) but the 2019 Georgia return was filed using the 39 year life for QIP. In this case, the taxpayer should explain on the 2020 Georgia return what is happening in a footnote or attachment (no 3115 is required). Like the Federal, no Georgia approval is necessary. The taxpayer should then make the one-time adjustment on the Georgia Form 4562 like it is done Federally for assets placed in service in a prior year. This will then flow to the 2020 Georgia return with the other Georgia depreciation.
Policy Bulletin IT 2018-01 Exclusion for Dividends from Sources Outside the United States may also provide helpful information regarding certain Federal changes enacted in 2017.
Georgia has also not adopted the following:
- 30%, 50%, and 100% bonus depreciation rules, I.R.C. Section 168(k).
- Federal deduction for income attributable to domestic production activities, I.R.C. Section 199.
- 20% qualified business income deduction, I.R.C. Section 199A.
- 30% limitation on business interest (Georgia follows the provisions of I.R.C. Section 163(j) that existed before enactment of federal Public Law 115-97). Since Georgia follows the prior rules of I.R.C. Section 163(j), Georgia does not recognize the provisions for an electing real property trade or business (163(j)(7)(a)(ii) and 163(j)(7)(B)). Thus, for purposes of computing federal income for Georgia income tax purposes, the taxpayer would not be subject to the alternative depreciation method under I.R.C. Section. 168(g), and would therefore depreciate assets as if the new provisions of 163(j) had not been enacted. This will cause different depreciation for federal and Georgia purposes.
- New 2017 and later rules relating to contributions to capital (Georgia follows the provisions of I.R.C. Section 118 that existed before enactment of federal Public Law 115-97). Therefore, the value of land or other property contributed to a corporation by a governmental unit or by a civic group for the purpose of inducing the corporation to locate its business in a particular community, or to enable the corporation to expand its operating facilities, is still treated as a tax-free contribution to capital by a nonshareholder, rather than as a contribution in aid of construction (CIAC). In addition, the exception still applies under which money or property received as a CIAC from any person (whether or not a shareholder) by a regulated public utility that provided water or sewerage disposal services is still nontaxable, provided that certain requirements are met. However, no deduction can be taken by the contributor and the basis of property contributed as a nontaxable CIAC is zero.
- Deferral of debt income from reacquisitions of business debt at a discount in 2009 and 2010 which is federally deferred for up to five years, then included ratably over five years, I.R.C. Section 108(i).
- Modified rules for high yield original issue discount obligations, I.R.C. Sections 163(e)(5)(F) and 163(i)(1).
- New York Liberty Zone Benefits, I.R.C. Section 1400L.
- 50% first year depreciation for post 8/28/2006 Gulf Opportunity Zone property, I.R.C. Section 1400N(d)(1).
- 50% bonus depreciation for most tangible property and computer software bought after May 4, 2007 and placed in service in the Kansas Disaster Area, I.R.C. Section 1400N(d)(1).
- 50% bonus depreciation for “qualified reuse and recycling property”, I.R.C. Section 168(m).
- 50% bonus depreciation in connection with disasters federally declared after 2007, I.R.C. Section 168(n).
- Increased ($8,000) first-year depreciation limit for passenger automobiles if the passenger automobile is “qualified property,” I.R.C. Section 168(k).
- For assets placed in service on or before December 31, 2017, 15 year straight-line cost recovery period for certain improvements to retail space, I.R.C. Sections 168(e)(3)(E)(ix), 168(e)(8), and 168(b)(3)(I).
- For assets placed in service on or before December 31, 2017, modified rules relating to the 15 year straight-line cost recovery for qualified restaurant property (allowing buildings to now be included), I.R.C. Section 168(e)(7).
- 5 year depreciation life for most new farming machinery and equipment, I.R.C. Section 168(e)(3)(B)(vii).
- Special rules relating to Gulf Opportunity Zone public utility casualty losses, I.R.C. Section 1400N(j).
- 5 year carryback of NOLs attributable to Gulf Opportunity Zone losses, I.R.C. Section 1400N(k).
- 5 year carryback of NOLs incurred in the Kansas disaster area after May 3, 2007, I.R.C. Section 1400N(k).
- The election to deduct public utility property losses attributable to May 4, 2007 Kansas storms and tornadoes in the fifth tax year before the year of the loss, I.R.C. Section 1400N(o).
- Temporary tax relief provisions relating to the Midwestern disaster area, I.R.C. Sections 1400N(f) and 1400N(k).
Depreciation Differences. Depreciation differences due to the federal tax acts mentioned above should be treated as follows (if the taxpayer has depreciation differences from more than one federal tax act, it is not necessary to make a separate adjustment for each act):
- Depreciation must be computed one way for federal purposes and another way for Georgia purposes. Taxpayers should attach the current year IRS Form 4562 to the Georgia return. Federal depreciation should be added back to Georgia income by entering it on the other addition line of the return.
- Depreciation must then be computed for Georgia purposes on Georgia Form 4562 which should be attached to the Georgia return. Georgia depreciation should be entered on the other subtraction line of the return.
Other Differences. Other differences should be placed on the other addition or subtraction line of the applicable return. Attach a statement to the return explaining these differences.
Additionally, decoupling from certain federal provisions may have other effects on the calculation of Georgia taxable income. Adjustments for the items listed below should be added or subtracted on your Georgia income tax form, as appropriate.
- When property is sold for which federal bonus depreciation was claimed, there will be a difference in the gain or loss on the sale of the property for Georgia purposes.
- The depreciation adjustment for Georgia may be different if the taxpayer is subject to the passive loss rules and is not able to claim the additional bonus depreciation on the federal return.
- Georgia follows the I.RC. Section 461(l) loss limitation. However, before the I.RC. Section 461(l) loss limitation is applied, the business should compute the business income and deductions pursuant to the I.R.C. as defined for Georgia purposes (making the adjustments specified on this page including but not limited to the 168(k) disallowance). Then the I.RC. Section 461(l) provisions should be applied to the loss as computed for Georgia purposes.
- Other federal items that are computed based on Federal Adjusted Gross Income (FAGI) or Federal Taxable Income (FTI) will have to be recomputed if FAGI or FTI are affected by provisions from which Georgia has decoupled.
Also, in 2003 the IRS started requiring separate reporting, to shareholders of S corporations and partners of partnerships, for the gain from asset sales for which an I.R.C. Section 179 deduction was claimed. Georgia follows the separate reporting treatment of the gain and the Section 179 deduction. Accordingly, the gain should not be reported directly on the S corporation or partnership return, but the gain, along with any Georgia adjustment to the gain (due to the federal tax acts), should be reported separately to the shareholders or partners.
Georgia has adopted certain federal provisions which were enacted in 2016 to assist combat-injured veterans to recover income taxes that were improperly collected by the Department of Defense (DOD) on certain disability severance payments. Like the federal law, the bill extends the 3-year period for filing a refund claim with Georgia to the same date that is allowed federally (the date that is one year after DOD provides the veteran with the information required under the federal provision).