Bonus depreciation rule for resident with out of state biz

Hawaii does not adopt the federal provisions for bonus depreciation.

If client, who is a Hawaii resident, takes bonus depreciation in a pass through entity that is in a state with no income tax, must I still must track Hawaii depreciation separately and make adjustments to income as appropriate?

I'm thinking yes, because it is a passthrough.

But then, when I complete a Hawaii s corporate tax return, the bottom line is different and the numbers on the K1 are different.

If I was not the preparer of the out of state pass through entity, how would I know what the Hawaii depreciation adjustment should be? So now that makes me think that I would NOT have adjust for bonus depreciation in this case.

If I was not the preparer of the out of state pass through entity, how would I know what the Hawaii depreciation adjustment should be? So now that makes me think that I would NOT have adjust for bonus depreciation in this case.

If Hawaii has decoupled then the correct answer is that you need to make the adjustment. Furthermore, you have knowledge that bonus was taken even if nothing was disclosed in the K-1 package. So bare minimum you have an ethical dilemma if you ignore it. Worse, a liability issue if your client's Hawaii return is ever audited or examined, the statute hasn't passed, and the client can prove you had knowledge that bonus was being taken at the federal level.

Is Hawaii one of the states that requires a Hawaii partnership return to be filed if a partner or member is a Hawaii resident? For example see GA, NY, PA.

If it is, the preparer needs to file Hawaii and I assume the adjustment will be reflected on that return and state K-1 or substitute state K-1.

If not, I'd request that the 1065 preparer calculate the bonus adjustment annually and disclose that on a K-1 footnote.

I would not try to recreate depreciation or calculate this if you're not the 1065 preparer. This is something they can figure out relatively easily on their end and something they should be doing and disclosing anyway if they know that at least one partner/member is a resident of a state with an income tax that has decoupled from bonus depreciation. Don't spend any time or resources trying to figure this out, push that to the other firm. It's their job.

But then, when I complete a Hawaii s corporate tax return, the bottom line is different and the numbers on the K1 are different.

I'm not sure what you mean here.

Outstanding insights MvT, thanks for your help as always. Much appreciated.