December 10, 1980
Chapter 409 of the Acts of 1979 amended the Massachusetts income tax statute (G.L. c. 62) by repealing the Massachusetts definitions of "net capital gain", "net capital loss", "capital gain", "capital loss" (G.L. c. 62, s. 1(k)) and Massachusetts basis rules (G.L. c. 62, s. 7). Chapter 409 also provided for a capital gain deduction (G.L. c. 62, s. 2(c)(3)).
You inquire as to the effect of these amendments to Chapter 62 on the computation of capital gain for Massachusetts income tax purposes.
The former Section 7 of Chapter 62 provided rules for the determination of the Massachusetts basis of property and disallowed the following federal adjustments to basis: adjustments relating to original issue discounts on bonds, adjustments relating to shares of Subchapter S corporations, adjustments relating to amortizable municipal bond premiums, and adjustments for gift taxes paid.
The repeal of the Massachusetts basis provisions and of the Massachusetts definitions relating to capital gain, effective for taxable years beginning on or after January 1, 1980, results in the adoption by Massachusetts of federal net long-term and short-term capital gain and loss for purposes of determining Massachusetts gain or loss.
For Massachusetts income tax purposes, federal tax law is determined according to the Internal Revenue Code as amended on November 6, 1978, (G.L. c. 62, s. 1(c)).
Chapter 62, Section 2(c)(2) grants a net capital loss deduction of up to $1,000 against dividends and interest taxed at 10%; any excess net capital loss is applied in the five succeeding taxable years to reduce capital gain and up to $1,000 of taxable dividends and interest per year.
Section 2(c)(3) of Chapter 62 now provides a capital gain deduction of 20% for 1980, 40% for 1981 and 60% for 1982 and subsequent years. The deduction is computed on the excess of net long-term capital gain over net short-term capital loss, after subtracting excess losses carried over from prior years.
To summarize, for taxable years beginning on or after January 1, 1980:
1. Massachusetts net long-term and short-term capital gains and losses will be determined in the same manner as federal net long-term and short-term capital gains and losses before deducting federal loss carryovers;
2. The Massachusetts capital gain deduction is computed on Massachusetts net long-term gain remaining after deducting Massachusetts net short-term losses and available Massachusetts losses from prior years.
Very truly yours,
/s/L. Joyce Hampers
L. Joyce Hampers
Commissioner of Revenue