General Rules and Qualifications

The excess of allowable exemptions over Form 1, Line 10 or Form 1-NR/PY, Line 12 income may be deducted against Schedule B and D income.

The order in which the exemptions may be claimed is as follows:

  • against Schedule B income after deductions for allowable excess trade or business deductions, short-term capital losses, unused long-term capital losses and 50% long-term capital gains deduction (for collectibles and pre-1996 installment sales). The excess exemptions are first applied against adjusted gross interest and dividends and then against adjusted gross capital gains;
  • against Schedule D income after netting long-term gains and losses, applying any excess Schedule D losses against Schedule B income, deducting excess Schedule B losses and deducting allowable excess trade or business deductions.

Any remaining excess exemptions may not to be carried forward to subsequent tax year.

Married filing separate taxpayers may not claim excess exemptions.

Qualification for Excess Exemptions is determined by completing the following worksheets:
  • for residents whose total exemptions in Line 18 are more than the amount of 5.2% income after deductions in Line 17, Schedule B, Line 36 and Schedule D, Line 19 Worksheet - Exemptions from Interest and Dividend Income, 12% Income and Long-Term Capital Gain Income;
  • for nonresidents and part-year residents whose total exemptions in Line 22 are more than the amount of 5.2% income after deductions in Line 21, Schedule B, Line 36 and Schedule D, Line 19 Worksheet - Exemptions from Interest and Dividend Income, 12% Income and Long-Term Capital Gain Income.
Example: Single taxpayer with the following items of income, deductions and exemptions
Income:  
 Wages$10,000
 Dividends$2,300
 Short Term Capital Gains $400 
   
Deductions and Exemptions:  
 FICA$2,000
 Exemptions$9,200
   
Calculation:  
 Wages$10,000
 Less: FICA ($2,000)
 Income$8,000
 Less: Exemptions($9,200)
 Excess Exemptions($1,200) available
   
 Dividends and Capital Gains$2,700
 Excess Exemptions    ($1,200)
 Taxable Dividends$ 1,500
 Taxable Capital Gains$0
Since the amount of adjusted gross dividends and capital gains after applying the excess exemptions is less than original amount of dividends reported, such amount is deemed to be dividends taxed at the lower rate.

Where to Report on Original Tax Return; What to Enclose:

  • Residents must complete the Schedule B, Line 36 and Schedule D, Line 20 Worksheet - Excess Exemptions from Interest and Dividend Income, 12 percent Income and Long-Term Capital Gain income, 2014 Form 1 instructions, Page 11 pdf format of Form 1 Instructions
. This worksheet can also be completed by using the Interactive Schedule B, Line 36 and Schedule D, Line 20 Worksheet. If qualified, enter the amount from Line 5 of the worksheet on Schedule B, Line 36, and enter the amount from Line 8 of the worksheet on Schedule D, Line 19.
  • Nonresidents and part-year residents must complete the Schedule B, Line 36 and Schedule D, Line 20 Worksheet - Excess Exemptions from Interest and Dividend Income, 12 percent Income and Long-Term Capital Gain Income, 2014 Form 1-NR/PY Instructions, Page 16. This worksheet can also be completed by using the Interactive Schedule B, Line 36 and Schedule D, Line 20 Worksheet. If qualified, enter the amount from Line 5 of the worksheet on Schedule B, Line 36, and enter the amount from Line 8 of the worksheet on Schedule D, Line 19.

Massachusetts References:

  • M.G.L. Chapter 62, Sections 3(A)(b); 3(C)(b)