Just when I thought this nasty project was over......
One more question has reared it's ugly head.
The 1031 exchange I've now wrapped up was an Idaho property for Arkansas property. Both properties were operating rentals in 2018 (apartment complexes), so I've apportioned income using rental revenues, beginning of year vs end of year property, etc.
We had new equipment and some excess Land Improvements on which we claimed bonus depreciation. Arkansas and Idaho both do not recognize bonus depreciation so we have to do an add back, which was done via apportionment.
Arkansas is not an issue but for the Idaho resident owners they have passive loss limitations which allow none of the rental losses, but I believe the Idaho bonus depreciation add back is required to be taxed, so we've kind of created a phantom tax (that will reverse itself over the next 5 to 15 years).
But my real question is why am I doing an Idaho add back for bonus depreciation taken on an Arkansas property? Is this just a casualty of apportionment or is there a way I can specifically allocate the add back to Arkansas?
Or am I handling this entirely wrong...