71.05(11)(b) (b) The cost of the following described property, less any federal depreciation or amortization taken, may be deducted as a subtraction modification or as subtraction modifications in the year or years in which paid or accrued, dependent on the method of accounting employed: All property purchased or constructed as a waste treatment facility utilized for the treatment of industrial wastes, as defined in s. 281.01 (5), or air contaminants, as defined in s. 285.01 (1), but not for other wastes, as defined in s. 281.01 (7), for the purpose of abating or eliminating pollution of surface waters, the air, or waters of the state and, if the property’s owner is taxed under ch. 76, if the property is approved by the department of revenue. In case of such election, appropriate add modifications shall be made in subsequent years to reverse federal depreciation or amortization or to correct gain or loss on disposition. This paragraph is intended to apply only to depreciable property except that where wastes are disposed of through a lagoon process, lagooning costs and the cost of land containing such lagoons may be treated as depreciable property for purposes of this paragraph. In no event may any amount in excess of cost be deducted. Paragraph (a) applies to all property purchased prior to July 31, 1975, or purchased and constructed in fulfillment of a written construction contract or formal written bid, which contract was entered into or which bid was made prior to July 31, 1975.

71.05(12) (12) Basis.

71.05(12)(a) (a) Except as provided in pars. (b) and (c), the Wisconsin basis of an asset owned by an individual, estate or trust and acquired before the individual became a resident of this state or before the estate or trust became subject to taxation under this chapter is the federal adjusted basis.

71.05(12)(b) (b) Whenever an individual acquires a new residence, as defined in section 1034 (a) of the internal revenue code, in this state, the adjusted basis of the new residence is not required to be reduced as required under sections 1016 (a) (7) and 1034 (e) of the internal revenue code upon the sale or exchange of an old residence located outside this state if:

71.05(12)(b)1. 1. The sale or exchange of the old residence occurred in taxable year 1975 or thereafter and the individual was not a resident of this state at the time of sale or exchange of the old residence; or

71.05(12)(b)2. 2. The sale or exchange of the old residence occurred before taxable year 1975, regardless of whether the individual was a resident of this state at the time of sale or exchange of the old residence.

71.05(12)(c) (c) Whenever a resident of this state sells or exchanges a principal residence located outside this state and the nonrecognition of gain provision of section 1034 (a) of the internal revenue code does not apply to that sale or exchange, the adjusted basis of the residence sold or exchanged is not required to be reduced as required by sections 1016 (a) (7) and 1034 (e) of the internal revenue code for any nonrecognized gain on the sale or exchange of any old principal residence located outside this state if:

71.05(12)(c)1. 1. The sale or exchange of the old residence occurred in taxable year 1975 or thereafter and the individual was not a resident of this state at the time of sale or exchange of the old residence; or

71.05(12)(c)2. 2. The sale or exchange of the old residence occurred before taxable year 1975, regardless of whether the individual was a resident of this state at the time of sale or exchange of the old residence.

71.05(12)(d) (d) Property exchanged under s. 766.31 (3) (b) shall be treated as if acquired by gift for the determination of basis.

71.05 Cross-reference Cross-reference: See also s. Tax 2.30, Wis. adm. code.

71.05(13) (13) Transitional adjustments. It is the purpose of this subsection to prevent the double inclusion or omission of any item of income, deduction or basis by reason of change to reporting on the basis of federal taxable income or federal adjusted gross income.

71.05(13)(a) (a) In this subsection:

71.05(13)(a)1. 1. “Adjusted basis” of a liability or reserve account created by accruals or other charges deducted from income for federal or Wisconsin income tax purposes is the current balance of such account on the transitional date.

71.05(13)(a)2. 2. “Changing basis assets” means inventories and assets or accounts, including liability and reserve accounts created by accruals or other charges deducted from income, other than annuity contracts or constant basis assets. “Changing basis assets” include property subject to depreciation, depletion or amortization of cost, premium or discount; capitalized intangible expenses such as trademark expense, research and development expense and loan expense if the same are being amortized for federal income tax purposes; and accruals, reserves and deferrals of either income or expense.

71.05(13)(a)3. 3. “Constant basis assets” means assets, other than inventories, the federal adjusted basis of which does not affect and is not affected by the computation of the taxpayer’s federal taxable income except when such asset is sold, exchanged, abandoned or otherwise disposed of.

71.05(13)(a)4. 4. “Federal adjusted basis” means the adjusted basis of the asset or account for the purpose of determining gain on the sale or other disposition thereof computed as of the transitional date for federal income tax purposes.

71.05(13)(a)5. 5. “Owner” means successively the owner of changing basis assets or constant basis assets as of the transitional date and any subsequent owner whose basis for such assets is found by reference to the basis therefor of another person.

71.05(13)(a)6. 6. “Transitional date” means the first day of the taxpayer’s 1965 taxable year.

71.05(13)(a)7. 7. “Wisconsin adjusted basis” means the adjusted basis of the asset or account which would have been applicable in determining gain on the sale or other disposition thereof on the day preceding the transitional date.

71.05(13)(b) (b) With respect to a constant basis asset any excess of federal adjusted basis over Wisconsin adjusted basis shall be added to income, and any excess of Wisconsin adjusted basis over federal adjusted basis shall be subtracted from income in the year in which such asset is sold, exchanged, abandoned or otherwise disposed of by the owner in a transaction in which gain or loss is recognized to the owner.

71.05(14) (14) Transitional adjustment; loss carry-forwards. The amount of any long-term capital loss carry-forward from any taxable year prior to the 1982 taxable year which is not allowed as a deduction under section 1211 (b) of the internal revenue code may be deducted, subject to the annual limitations provided in section 1211 (b) of the internal revenue code. A deduction is authorized under this subsection only when the amount of capital loss or capital loss carry-forward deducted in determining federal adjusted gross income for the taxable year is less than the limitations provided in section 1211 (b) of the internal revenue code. For taxable years 1982 to 1985 for married persons, the annual limitation referred to in this subsection shall be determined under the separate return provisions of section 1211 (b) (2) of the internal revenue code. For taxable year 1986 and thereafter for married persons, the annual limitation shall be determined under section 1211 (b) of the internal revenue code.

71.05(15) (15) Transition. In regard to property that, under s. 71.02 (2) (d) 12., 1985 stats., is required to be depreciated for taxable year 1986 under the internal revenue code as amended to December 31, 1980, and that was placed in service by the taxpayer during taxable year 1986 and thereafter but before the property is used in the production of income subject to taxation under this chapter, the property’s adjusted basis and the depreciation or other deduction schedule are not required to be changed from the amount allowable on the owner’s federal income tax returns for any year because the property is used in the production of income subject to taxation under this chapter.

71.05(16) (16) Depreciation continuation. For taxable years beginning before January 1, 2014, property that, under s. 71.02 (2) (d) 12., 1985 stats., is required to be depreciated for taxable year 1986 under the internal revenue code as amended to December 31, 1980, shall continue to be depreciated under the internal revenue code as amended to December 31, 1980.

71.05(17) (17) Difference in basis. For taxable years beginning before January 1, 2014, with respect to depreciable property that, under s. 71.02 (2) (d) 12., 1985 stats., is required to be depreciated for taxable year 1986 under the internal revenue code as amended to December 31, 1980, and that was disposed of in taxable year 1986 and thereafter, any difference between the adjusted basis for federal income tax purposes and the adjusted basis under this chapter shall be taken into account in determining net income or loss in the year or years that the gain or loss is reportable under this chapter.

71.05(18) (18) Carry-over basis precluded. For taxable years beginning before January 1, 2014, with respect to property that, under s. 71.02 (2) (d) 12., 1985 stats., is required to be depreciated for taxable year 1986 under the internal revenue code as amended to December 31, 1980, and that was acquired in a transaction occurring in taxable year 1986 and thereafter in which the adjusted basis of the property in the hands of the transferee is the same as the adjusted basis of the property in the hands of the transferor, the Wisconsin adjusted basis of that property on the date of transfer is the adjusted basis allowable under the depreciation provisions of the internal revenue code as defined for Wisconsin purposes for the property in the hands of the transferor.

71.05(19) (19) Modification of federal adjusted gross income. Whenever a person other than a corporation acquires, after the transitional date, as defined in sub. (13) (a) 6., a constant basis asset, the federal basis of which is different from the Wisconsin basis, an appropriate modification of federal adjusted gross income shall be made in the year of sale, exchange, abandonment or other disposition of such asset properly to reflect the income consequences of such difference. Whenever such a person acquires, after said transitional date, a changing basis asset the federal basis of which is different from the Wisconsin basis, appropriate modifications of federal adjusted gross income shall be made each year properly to reflect the income consequences of such difference; in any such case the secretary of revenue or his or her delegate may agree with the taxpayer for an amortization of such difference in basis over a period of 5 years or less.

71.05(20) (20) Partnership interests. Whenever a person other than a corporation sells, exchanges or otherwise disposes of an ownership interest in a partnership in a transaction in which gain or loss is recognized, an appropriate modification to federal adjusted gross income may be made in the year of disposition to reflect an increase or decrease in the basis of the partnership interest equal to any reductions or additions in such basis occurring in calendar or fiscal years prior to 1975 as a result of losses or gains relating to business or property which had a situs outside of this state under the provisions of s. 71.07, 1985 stats., in effect for years prior to 1975.

71.05(21) (21) Capital gain and loss treatment for adjustments for difference in Wisconsin and federal basis of capital assets. Notwithstanding the provisions of subs. (7), (10) (b) and (e), (13), (19) and (20), the amount of any adjustment relating to the basis of a capital asset shall be combined with other long-term or short-term capital gains and losses reportable for the taxable year or carry-over year, as appropriate. The provisions of sections 1202, 1211 and 1212 of the internal revenue code, to the extent recognized or allowed by this chapter (including any addition required by s. 71.05 (1) (a) 2., 1983 stats., for the taxable year 1983), apply to the resulting net gain or loss determined. Add or subtract, as appropriate, from federal adjusted gross income of the taxable year or a carry-over year an amount to reflect the income consequences of making the amount of a basis adjustment required under this subsection subject to capital gain and loss treatment.