Form 41a765(I) - Kentucky Partnership Income And Llet Return Instructions

IMPORTANT

Partnerships must create a Kentucky Form 4562, Schedule D and Form 4797 by converting federal forms.

Depreciation, Section 179 Deduction and Gains/Losses From

allowable Section 179 deduction for Kentucky purposes is

Disposition of Assets—For taxable years beginning after

reduced dollar–for–dollar by the amount by which the cost

December 31, 2001, Kentucky depreciation and Section 179

of qualifying Section 179 property placed in service during

deduction are determined in accordance with the IRC in effect

the year exceeds $200,000. In determining the Section

on December 31, 2001. For calendar year 2011 returns and fiscal

179 deduction for Kentucky, the income limitation on Line

year returns that begin in 2011, any partnership that elects any

11 should be determined by using Kentucky net income

of the following will have a different depreciation or Section

before the Section 179 deduction instead of federal taxable

179 expense deduction for Kentucky purposes than for federal

income.

purposes:

3. The partnership must attach the Kentucky Form 4562

•

30 percent bonus depreciation allowance;

to Form 765, and the amount from Kentucky Form 4562,

Line 22 less the Section 179 deduction on Line 12 must

•

50 percent bonus depreciation allowance;

be included on Form 765, Part I, Line 8. The Section 179

•

increased Section 179 deduction from $25,000 to $250,000;

deduction from the converted Form 4562, Line 12 must

be included on Form 765, Schedule K, Section I, Line 9. A

•

increased Section 179 deduction from $25,000 to $500,000.

Kentucky Form 4562 must be filed for each year even if a

federal Form 4562 is not required.

If any of the above federal/Kentucky differences exist, the

differences will continue through the life of the assets. There

Determining and Reporting Differences in Gain or Loss From

will be recapture and basis differences for Kentucky and

Disposition of Assets—If during the year the partnership

federal income tax purposes until the assets are sold or fully

disposes of assets on which it has taken the special

depreciated.

depreciation allowance or the additional Section 179 deduction

for federal income tax purposes, the corporation will need to

Important: If the partnership has not taken the 30 percent

determine and report the difference in the amount of gain or

special depreciation allowance, the 50 percent special

loss on such assets as follows:

depreciation allowance or the increased Section 179 deduction

for federal income tax purposes on any assets for which a

1. Convert federal Schedule D (Form 1065) and other applicable

depreciation deduction is being claimed for the taxable year,

federal forms to Kentucky forms by entering Kentucky at the

then no adjustment will be needed for Kentucky income tax

top center of the form, and compute the Kentucky capital

purposes. If federal Form 4562 is required to be filed for federal

gain or (loss) from the disposal of assets using Kentucky

income tax purposes, a copy must be submitted with Form

basis. Enter the amount from Kentucky Schedule D, Line

765 to verify that no adjustments are required.

6 on Form 765, Schedule K, Section I, Line 4(d) or 7. Enter

the amount from Kentucky converted Schedule D, Line 13

Determining and Reporting Depreciation and Section 179

on Form 765, Schedule K, Section I, Line 4(e) or 7. Federal

Deduction Differences—Federal/Kentucky depreciation

Schedule D (Form 1065) filed with the federal return and

or Section 179 deduction differences shall be reported as

the Kentucky Schedule D (Form 1065) must be attached

follows:

to Form 765.

1. The depreciation from federal Form 1065, Line 16(a) must

2. If the amount reported on federal Form 1065, Line 6 (from

be included on Form 765, Part I, Line 3. If federal Form 4562

Form 4797, Line 17) is a gain; enter this amount on Schedule

is required to be filed for federal income tax purposes, a

O–PTE, Part II, Line 1. If the amount reported on federal

copy must be attached to Form 765.

Form 1065, Line 6 (from Form 4797, Line 17) is a loss; enter

this amount on Schedule O–PTE, Part I, Line 1. Convert

2. Convert federal Form 4562 to a Kentucky form by entering

federal Form 4797 and other applicable federal forms to

Kentucky at the top center of the form above Depreciation

Kentucky forms by entering Kentucky at the top center of

and Amortization. Compute Kentucky depreciation and

the form, and compute the Kentucky gain or (loss) from

Section 179 deduction in accordance with IRC in effect on

the sale of business property using Kentucky basis. If the

December 31, 2001, by ignoring the lines and instructions

amount on Kentucky Form 4797, Line 17 is a gain; enter this

regarding the special depreciation allowance and the

amount on Schedule O–PTE, Part I, Line 2. If the amount

additional Section 179 deduction. NOTE: For Kentucky

on Kentucky Form 4797, Line 17 is a loss; enter this amount

purposes, the maximum Section 179 deduction amount

on Schedule O–PTE, Part II, Line 2. Federal Form 4797 filed

on Line 1 is $25,000 and the threshold cost of Section 179

with the federal return and the Kentucky Form 4797 must

property on Line 3 is $200,000. The $25,000 maximum

be attached to Form 765.

Form 41a765(I) - Kentucky Partnership Income And Llet Return Instructions - 2011 Page 3

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