Taxpayer Services Division
Federal Tax Changes And How They Affect 2005 Returns

Gulf Opportunity Zone Act of 2005. Georgia has not adopted the provisions of this act. As such, adjustments must be made on the 2005 Georgia returns for these provisions.

Katrina Emergency Tax Relief Act of 2005.  Georgia has not adopted the provisions of this act. As such, an adjustment must be made on the Georgia return for these provisions. For example, a taxpayer who claims a charitable deduction for more than 50% of their charitable base income in 2005 would have to add the excess over the 50% to their 2005 Georgia income. However, this amount may be carried to 2006.

Job Creation and Worker Assistance Act of 2002, Jobs and Growth Tax Relief Reconciliation Act of 2003, Working Families Tax Relief Act of 2004, and American Jobs Creation Act of 2004. Georgia has adopted the provisions of these acts (as they relate to the computation of Federal adjusted gross income and Federal taxable income) for taxable years beginning on or after January 1, 2005, except for I.R.C. Section 168(k) (30% and 50% bonus depreciation), Section 1400L (tax benefits for the New York Liberty Zone), and Section 199 (deduction for income attributable to domestic production activities), which are treated as if they are not in effect. For tax years beginning on or after January 1, 2005, Georgia has now adopted the increased I.R.C. Section 179 deduction ($105,000 in 2005) and the related phase out ($420,000 in 2005) that was enacted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Sales Tax Deduction Claimed for Federal Purposes in 2004.   If in 2004, a taxpayer included a sales tax deduction in their itemized deductions for federal purposes but included an income tax deduction in their itemized deductions for Georgia purposes, the income tax refund received in 2005 would be taxable on their 2005 Georgia return to the extent they received a tax benefit.

Federal deduction for income attributable to domestic production activities (IRC Section 199). This should be entered on the addition line of the applicable return. An adjustment to the Georgia partnership or S Corporation return is not required if the partnership or S Corporation is not allowed the Section 199 deduction directly, but instead passes the information needed to compute the deduction to the partners or shareholders.

Depreciation Differences. Depreciation differences due to the Federal acts mentioned above should be handled as follows. If the taxpayer has depreciation differences from more than one Federal act, it is not necessary to make a separate adjustment for each act.

A. Depreciation must be computed one way for Federal purposes and another way for Georgia purposes. To compute depreciation for Federal purposes, taxpayers should use the 2005 IRS Form 4562 and attach it to the Georgia return.

B. Depreciation must also be computed for Georgia purposes. Taxpayers should use Georgia Form 4562 to compute depreciation for Georgia purposes and attach it to the Georgia return.

Please see the Georgia form instructions for more information including the specific line numbers where adjustments should be made.

All flow through entities (partnerships, S Corporations, limited liability companies, limited liability partnerships, and fiduciaries) that own property in Georgia, do business in Georgia, receive income from Georgia sources, or that have Georgia resident owners/beneficiaries should notify them of the required adjustments. Depreciation differences may also be reported to you by these types of entities.

Additionally, the provisions listed above may have an indirect effect on the calculation of Georgia taxable income. Adjustments from the items listed below should be added or subtracted on your Georgia income tax form.

1.  When property is sold, for which the bonus depreciation was claimed, there will be a difference in the gain or loss on the sale of the property.

2.  The depreciation adjustment may be different if the taxpayer is subject to the passive loss rules and is not able to claim the additional depreciation on the Federal return.

3.  Other Federal items that are computed based on Federal Adjusted Gross Income or Federal Taxable Income will have to be recomputed if the provisions of the Federal Acts are claimed. Some examples are itemized deductions, student loan interest deduction, self employed health insurance deductions, contributions, etc.

Further, in 2003 the IRS started requiring separate reporting to shareholders of S Corporations and partners of partnerships of 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 acts) should be reported separately to the shareholders or partners.

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