Federal Deductions Allowed 

Trade or business deductions allowable under I.R.C. § 62 (i.e., Schedule C and E, etc.) are:

  • Deductions for contributions of employers to employees' qualified pension plan under I.R.C. § 404 with certain exceptions (DD 01-07);
  • Expenses of travel, meals and lodging while away from home or transportation expenses relating to performance of services as an employee;
  • Alimony paid;
  • Student loan interest, medical savings account, and self-employed health insurance.

Federal (U.S. 1040), Line 36) Deductions Allowed on 2012 Massachusetts Schedule Y, Lines 1-10

There are several adjustments to gross income (deductions) included in line 36 of the U.S. 1040: the sum total of lines 23 through 35, plus the total of all miscellaneous (certain qualified) deductions. There is no specific line item for these deductions. They are lumped into line 36 on the federal return, and they are all included on line 9 of Schedule Y on the Massachusetts return. The miscellaneous deductions are identified on the dotted line next to U.S. 1040 line 36 with the separate amounts and titles.

For each deduction, the amount from U.S. Form 1040 should be claimed on Massachusetts Form 1 or 1-NR/PY, Schedule Y as follows:
FEDERAL ADJUSTMENTS TO GROSS INCOMEU.S. FORM 1040MASS SCHEDULE Y, OTHER DEDCUTIONS,
Lines 1 - 10		FILL IN OVAL/MASS.
DOTTED LINE CODES
Reserved

Line 23

Not allowed

 
Certain Business Expenses of Qualified Performing Artist

Line 24

Line 9

fill in oval

Certain Business Expenses of State and Local Government Officials

Line 24

Line 9

fill in oval

Certain Business Expenses of National Guard and Reserve Members

Line 24

Line 9

fill in oval

Health Savings Account Deduction

Line 25

Line 8

 
Moving Expenses

Line 26

Line 5

 
Deductible Part of Self Employment Tax

Line 27

Not allowed

 
Self Employed SEP, SIMPLE
and Qualified Plans

Line 28

Not allowed

 
Self-Employed Health Insurance Deduction

Line 29

Line 7

 
Penalty on Early Withdrawal of Savings

Line 30/Line 16

Line 2

 
Alimony Paid

Line 31a

Line 3

 
IRA Deduction

Line 32/Line 17

Not allowed

 
Federal Student Loan Interest Deduction

Line 33/Line 18

Line12

 
Reserved

Line 34

Not Allowed

 
Domestic Production
Activities Deduction

Line 35

Not Allowed

 
FEDERAL ADJUSTMENTS TO GROSS INCOMEU.S. FORM 1040MASS SCHEDULE Y, CERTAIN QUALIFIED DEDUCTIONS AND BUSINESS EXPENSES,
Lines 1 - 10		FILL IN OVAL/MASS. DOTTED LINE CODES
Clean Fuel VehiclesLine 36Line 9Fill in oval and write "Clean Fuel"
Contribution to 501(c)(18) Pension PlansLine 36Not AllowedN/A
Expenses Related to the Rental of Personal Property Engaged in for ProfitLine 36Line 9Fill in oval and write "PPR"
Medical Savings Accounts (Archer MSA)Line 36Line 6 
Reforestation Amortization Deduction Line 36Line 9Fill in oval and write "RFST"
Jury Duty Pay Remittance Deduction Line 36Line 9Fill in oval and write "Jury Pay"
Repayment of Supplemental Unemployment Benefits Line 36Line 9Fill in oval and write
FEDERAL ITEMIZED DEDUCTIONSU.S. FORM 1040MASS SCHEDULE YFILL IN OVAL/MASS. DOTTED LINE CODES
Employee Business ExpensesSchedule ALine 1"

Federal Deductions Not Allowed from Form 1 and 1-NR/PY Income:

  • Deductions related to income not included in Massachusetts gross income
    For example, Medicare deducted from social security benefits is not an allowable deduction since the benefits are not included in Massachusetts gross income.
  • Depreciation bonus deduction allowed under I.R.C. § 168(k)
    For federal income tax purposes, taxpayers are entitled to an additional first-year depreciation deduction, under I.R.C. § 168(k), equal to a percentage of the adjusted basis of "qualified property" acquired by a certain date. Under 2002 legislation, Massachusetts decoupled from bonus depreciation allowed under I.R.C. § 168(k), as amended and in effect for the current year. Therefore, Massachusetts does not adopt this additional depreciation deduction.
  • Forfeitures due to premature withdrawal of funds deduction allowed under I.R.C. § 165
    For Massachusetts purposes, this deduction is not allowed to the extent that the income represented by such forfeiture is not included in Massachusetts gross income.
  • IRA (Retirement) contribution deduction allowed under I.R.C. § 219
    For federal purposes, an individual may deduct up to a maximum amount of contributions to an IRA if certain criteria are met. This includes any amount contributed to a 501(c)(18) plan. Massachusetts does not allow this deduction.
  • Life tenant income beneficiaries deduction allowed under I.R.C. § 62(a)(5)
    For Massachusetts purposes, any deduction relating to life tenants and income beneficiaries of property is not allowed to the extent a trust or estate taxable under this section is allowed the deduction.
  • Losses from the sale or exchange of property allowed under I.R.C. § 165(f)
    The IRS allows limited excess capital losses over capital gains that may be applied against other income as well as unused capital losses as capital losses in the succeeding years. Massachusetts does not allow these federal special capital loss treatments.
  • Net operating loss deduction allowed under I.R.C. § 172
    Massachusetts does not allow for the federal provisions to either carry back or carry forward any unused net operating loss.
  • Ordinary income portion of a lump sum distribution deduction allowed under § 402(e)(3)
    The IRS allows an averaging election, which effectively taxes distributions in the year received at a reduced rate. This method for reporting the distribution is not available in Massachusetts. Massachusetts taxes the full distribution as shown on U.S. Form 4972, not the reduced amount of distribution reported on U.S. 1040.
  • Political deductions
    For Massachusetts purposes, political deductions that are not allowed: any amount paid or incurred in connection with either influencing legislation; participating in any political campaign on behalf of or in opposition of any public office candidate; attempting to influence the general public with respect to elections or legislative matters; or communicating directly with an executive branch official in an attempt to influence them.
  • Qualified pension plan deduction contributions made on behalf of a self employed individual allowed under I.R.C. § 404
    For Massachusetts purposes, a self employed individual as defined under I.R.C. § 401(c)(1) is not entitled to the deduction under 404 to the extent attributable to contributions made on behalf of himself.

    DD 99-4: Since an S corporation shareholder does not fall under the definition of a self employed individual, such shareholder is considered an employee and therefore does not need to add back the amount of contribution. Prior to this directive, DOR treated S Corporation shareholders as self-employed individuals.
  • Qualified stock bonus and profit sharing plan deduction allowed under I.R.C. § 1379(b)(3)
    This deduction relates to amounts not received as benefits from certain qualified pension plans.
  • S Corporation deduction, taxed as a corporate trust
    For Massachusetts purposes, any deduction allowed by Subchapter S of the Code with respect to a federal S corporation that is taxed as a corporate trust is not allowed since such deduction is claimed by the corporate trust.
  • Self employment taxes one-half of tax paid deduction allowed under I.R.C. § 164(f)
    The IRS allows a deduction equal to one-half of self-employment taxes paid. Since self employment payments from U.S. Form SE may be claimed as a deduction up to $2,000 on either Massachusetts Form 1 or 1-NR/PY per G.L. c.62 s. 3B(a)(3), the IRS deduction is not allowed for Massachusetts purposes.
  • State legislators' travel expenses away from home deduction allowed under I.R.C. § 162(h)
    Massachusetts does not allow these deductions.

Note: Trade or business deductions allowable under I.R.C. § 62 include:

  • Trade or business deductions referenced by I.R.C. § 62(a)(1) which are deductions allowed by the current Internal Revenue Code (unless modified by M.G.L., Chapter 62);
  • Trade or business deductions other than those referenced by I.R.C. § 62(a)(1) which are deductions allowed by the 1998 Internal Revenue Code;
  • Other deductions allowable under I.R.C. § 62 of the 1998 Internal Revenue Code (unless specifically disallowed by M.G.L., Chapter 62).

Massachusetts Deductions - Schedules B and D

Interest, dividends and certain capital gains are further modified. Massachusetts generally does not follow federal rules with respect to these modifications c. 62 s. 2(c)(1)-(3):

  • Allowable excess trade or business deductions only up to the amount of Part A interest, dividends and capital gains effectively connected with the active conduct of a trade or business of the taxpayer.

    Any remaining excess trade or business deductions may be deducted first against Part A net capital gains and then against Part C long-term capital gains but only up to the amount of income effectively connected with the active conduct of a trade or business of the taxpayer.

    Any unused excess deductions may not to be carried forward to subsequent tax years;
  • Current short-term capital losses (including collectibles) as well as prior year short-term unused capital losses and losses on the sale of 4797 property held for one year or less may first offset short-term capital gains, long-term capital gains from collectibles and pre-1996 installment sales.

    Any remaining short-term capital losses may be deducted against Part A interest and dividends up to a maximum of $2,000;
  • Net short-term capital losses are deductible against net long-term capital gains after first deducting amount against Part A Income (short-term capital gains, long-term capital gains from collectibles and pre-1996 installment sales, and interest and dividends up to $2,000.)

    Any remaining amount is deductible against any long-term gains remaining after the netting of long-term gains against long-term losses. The short-term losses are first deducted against transactions prior to May 1, 2002, the highest rate long-term gains through (in descending) the lowest rate long-term gains, and then against transactions after May 1, 2002.

    Any unused short-term losses are carried forward to the next tax year;
  • Long-term capital losses are deductible against Part A income, but only after Part A income has been reduced by any excess Part B trade or business deductions and short-term losses. Losses are first applied against Part A interest and dividend up to a maximum of $2,000 if maximum was not already offset by short-term capital losses. The aggregate amount of the deductions for short-term and long-term capital losses against Part A interest and dividends cannot exceed $2,000.
Any remaining amount may be applied against Part A capital gains;
  • 50% deduction for long-term capital gains from sale of collectibles and pre-1996 installment sales.