(1) For purposes of this rule taxpayer means
an individual, S corporation, or partnership.
(2) Taxpayers not subject to the
apportionment provision of ORS
314.280 or
314.605 to
314.675.
(a) For Assets First Brought into Oregon's
Taxing Jurisdiction in Tax Years Beginning After 1982 and Prior to Tax Years
Beginning January 1, 1985.
(A) If a taxpayer
first brings a depreciable asset into Oregon's taxing jurisdiction in tax years
beginning after December 31, 1982 and prior to tax years beginning January 1,
1985, the asset shall be treated as if it is being converted from personal use
to business use. The asset's Oregon basis shall be the lower of the federal
unadjusted basis or fair market value. However, in no instance shall the
asset's Oregon basis be greater than the lower of:
(i) The federal unadjusted basis less Oregon
depreciation previously allowed for Oregon tax purposes; or
(ii) The fair market value less Oregon
depreciation previously allowed for Oregon tax purposes.
(B) The federal unadjusted basis of an asset
is its original basis prior to any adjustments (including, but not limited to,
reductions for investment tax credits, depreciation, depletion, amortization,
or amounts properly expensed under IRC Section 179). The asset's fair market
value and its expected useful life shall be determined as of the time the asset
was brought into Oregon's taxing jurisdiction. The taxpayer shall depreciate
the asset using a method consistent with federal tax law as of December 31,
1980.
Example 1
: A nonresident
taxpayer has a business in California. The taxpayer has a light truck that is
used only for business purposes. The truck was purchased on June 1, 1981 at a
cost of $10,000. The truck was depreciated in California over a life of three
years. The taxpayer moved to Oregon on September 1, 1983. The fair market value
of the truck was $6,000 on this date. The expected useful life of the truck on
September 1, 1983 was four years. The taxpayer elected to depreciate the truck
using the straight-line method for Oregon purposes over four years. The amount
of depreciation the taxpayer can claim in 1983 for Oregon purposes is $500
(4/12 x 1/4 x 6,000).
Example 2
: Assume the same facts as in Example 1 above. The taxpayer sold
the asset for $11,000 on January 1, 1985. The taxpayer shall recognize a total
Oregon gain of $7,000. The type and amount of gain the taxpayer shall recognize
for Oregon purposes is computed as follows: [Formula not included. See ED.
NOTE.]
(b) For
Assets First Brought into Oregon's Taxing Jurisdiction in Tax Years Beginning
After 1984. Assets first brought into Oregon's taxing jurisdiction in tax years
beginning after December 31, 1984, shall be allowed to use the Accelerated Cost
Recovery System (ACRS) method of depreciation as defined and allowed in IRC
Section 168 for Oregon purposes, if such assets were first placed in service in
tax years beginning after December 31, 1984 pursuant to the conditions set
forth in OAR
150-316-0567. The basis of all assets first brought into Oregon's
taxing jurisdiction beginning after December 31, 1984, shall be computed as if
the asset is being converted from personal use to business use. The asset's
Oregon basis shall be the lower of the federal unadjusted basis or fair market
value. However, in no instance shall the asset's Oregon basis be greater than
the lower of:
(A) The federal unadjusted
basis less Oregon depreciation previously allowed for Oregon tax purposes; or
(B) The fair market value less
Oregon depreciation previously allowed for Oregon tax purposes. The allowable
depreciation method for Oregon purposes shall be determined as of the time the
asset was first placed in service as defined in OAR
150-316-0567.
Example 3
: Mike is a California
resident. He has owned a beanery business in Yreka since 1984. Mike purchased
an office building for $100,000 and placed it in service on April 1, 1984. For
federal purposes, the building qualifies as 18-year real property and is being
depreciated using the applicable percentages allowed under ACRS. On January 1,
1988, Mike purchased his only other asset, a light truck, for $10,000. For
federal purposes, the truck qualifies as a 5-year property and is being
depreciated using the applicable percentages allowed under MACRS. On January 1,
1990, Mike moved to Ashland, Oregon and continued his California business in
Yreka. Since Mike has moved into Oregon's taxing jurisdiction, Mike must
determine his Oregon adjusted basis in the building and the truck in order to
depreciate the assets for Oregon. The Oregon adjusted basis is computed as
follows: [Formula not included. See ED. NOTE.]
The Oregon basis for depreciation of the building is the lesser
of the net basis of $100,000 or fair market value of $115,000. The basis for
Oregon depreciation is $100,000. Since Oregon did not adopt ACRS for assets
first placed in service in tax years beginning before January 1, 1985, Mike
must use an allowable depreciation method available for such assets using the
federal laws in effect as of December 31, 1980. Mike elects for Oregon purposes
to depreciate the building using the straight-line method over a useful life of
14 years.
Truck: The Oregon basis for depreciation of the truck is the
lesser of the net basis of $10,000 or fair market value of $6,000. The basis
for Oregon depreciation is $6,000. Since Oregon adopted ACRS for assets first
placed in service in tax years beginning after December 31, 1984, and
subsequently MACRS for assets placed in service in tax years beginning after
December 31, 1986, Mike will use MACRS for his Oregon and federal depreciation
deduction.
(3) For taxpayers subject to the
apportionment provisions of ORS
314.280 or
314.605 to
314.675. The basis for
depreciation on a previously acquired asset shall be computed as if the
taxpayer had always been subject to Oregon tax. The original unadjusted basis
shall be reduced by the depreciation allowable in previous years, using a
method acceptable for Oregon tax purposes in the year the asset is placed in
service. The remaining basis of the asset shall be depreciated over the
remainder of its original useful life, using the same allowable method.
Example 4
: Alpha, Ltd. is a
partnership that started operation in Washington. On January 1, 1984, the
partnership purchased a building in Seattle for $100,000. For federal purposes,
the partnership is depreciating the building under ACRS as 15-year property.
The partnership expanded and began doing business in Oregon on July 1, 1986. In
1984 Oregon did not allow the ACRS depreciation method. For Oregon purposes,
the partnership elected to depreciate the building under the straight-line
method over a 20-year life. Since the partnership is subject to the
apportionment rules, the basis of the building for Oregon will be as if the
building was depreciated for Oregon tax purposes using the straight-line method
from the date of purchase.
Cost - $100,000
1984 Straight-line depreciation - (5,000)
1985 Straight-line depreciation - (5,000)
1986 depreciation through July 1 - (2,500) - (12,500)
Oregon basis as of July 1, 1986 - $ 87,500
For purposes of determining Oregon taxable income, the
partnership will depreciate the building using an Oregon basis of $87,500 and
the straight-line method over the remaining life. For purposes of determining
federal taxable income, the partnership will continue to depreciate the
building under ACRS.
(4) Bringing assets into Oregon's taxing
jurisdiction. A taxpayer may bring assets into Oregon's taxing jurisdiction in
several different manners. First, a nonresident may become an Oregon resident
and physically bring business assets into Oregon. Second, a nonresident
taxpayer may become an Oregon resident and leave the assets in the other state.
Third, a nonresident may open a business operation in Oregon and transfer
business assets from a different state to the Oregon business.
(5) Applicable dates. Section (2) of this
rule applies to tax years beginning after December 31, 1982.
(6) Five year provision. If for any period of
five consecutive calendar years beginning on or after January 1, 1985, the
Oregon and federal depreciation methods are identical, the Oregon basis for
depreciation may be the same as the federal basis at the option of the
taxpayer. This election applies only to assets first brought into Oregon's
taxing jurisdiction upon the expiration of the five-year period.
Notes
Or. Admin. Code §
150-316-0565
12-20-83,
12-31-83(Temp); RD 2-1984, f. & cert. ef. 2-21-84, Renumbered from
150-316.707; RD 10-1986, f. & cert. ef. 12-31-86; RD 7-1991, f. 12-30-91,
cert. ef. 12-31-91; RD 5-1994, f. 12-15-94, cert. ef. 12-31-94; Renumbered from
150-316.707(1)-(A),
REV
64-2016, f. 8-15-16, cert. ef.
9/1/2016;
REV
58-2017, f. & cert. ef.
8/8/2017
Publications: The publication(s) referred to or incorporated
by reference in this rule is available from the Department of Revenue pursuant
to ORS 183.360(2) and
183.355(6).
Attachment referenced is not included in rule text.
Click here for PDF of
attachment.
Stat. Auth.: ORS
305.100
Stats. Implemented: ORS
316.707
