Indiana Tax Conformity | Excess Business Interest Deduction

The Indiana Factor – How Different Tax Rules Can Affect Your Business

Published on by Barnes Dennig in Tax Services

The Indiana Factor – How Different Tax Rules Can Affect Your Business

Like the pandemic itself, COVID-19 relief legislation brought about huge changes. The CARES Act and the recently enacted Consolidated Appropriations Act (CAA) not only brought desperately needed relief to businesses, organizations, and individuals, but also created an avalanche of tax changes. Knowing the nuances and navigating them successfully could be make or break – and if you’re in Indiana, the picture is a little bit different. Here’s what you need to know.

The Indiana Difference

Not every state follows the federal law when it comes to items of income and expenses, and Indiana likes to do things a bit differently (daylight savings time, anyone?) Since non-conformity with the federal law could significantly impact your state tax liability, it’s essential to understand the state’s differences and what they may mean for you.  Let’s unpack that.

Breaking It Down

Qualified Improvement Property (QIP) – Indiana (IN) does not conform to bonus depreciation or the new 15-year life for QIP.  Instead, Indiana will require you to depreciate the property over 39 years.

Excess business interest deductions – Indiana allows a deduction for the interest expense held up at the federal level.  The state’s non-conformity to these rules is a favorable position for businesses impacted by the new interest limitations under §163(j). (Need insight? Contact us – we’re here to help).

New federal 30-year ADS life for pre-2018 residential rental property – There’s no relief for Indiana businesses under the Alternative Depreciation System (ADS) federal provision.  And this is going to impact those taxpayers who elected Real Property Trade or Business (RPTB) status to avoid the interest limitations.  Indiana doesn’t recognize a 30-year ADS life for residential rentals for property placed-in-service before 2018 – instead, Indiana’s life for residential rentals under ADS is the former federal 40-year life.

PPP Loans & EIDL Grants and Advances – Unless the Indiana 2021 General Assembly chooses not to conform to the federal law changes, the state will allow the exclusion of PPP loan forgiveness income and the deduction of expenses funded by PPP loan-forgiven money.

Net Operating Losses (NOL) – Indiana does require the add-back of NOLs at the federal level.  Instead, businesses are permitted a deduction for their Indiana NOL.

Some Tax Extenders – Some items that the State of Indiana does not follow –

  • The federal energy-efficient buildings deduction (§179D)
  • The seven-year depreciation for motorsports improvement property

Need Help?

The variations can be confusing, and at the end of the day, knowing what does and doesn’t apply in Indiana is critical. Barnes Dennig’s Indianapolis-based team of professionals is on top of the latest and greatest, and we’re here to help. Contact us – we can answer your questions and help you navigate the way ahead.


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