Hawaii Tax Form N-15 - Nonresident and Part-Year Resident Income Tax Return Instructions

Changes for 2008

Direct deposit of your refund is available for Form N-13 and Form N-15 filers!
Taxpayers who compute their income tax using Form N-615, Computation of Tax for Children Under Age 14 Who Have Investment Income of More Than $1,000, cannot file Form N-13. Taxpayers using Form N-615 must file their individual income tax return using either Form N-11 or Form N-15.
For taxable years beginning after December 31, 2007, exempts from income tax 100 percent of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development, to the association of apartment owners or the residential cooperative corporation of the leasehold units. (Act 166, SLH 2007)
For taxable years beginning after December 31, 2007, changes the name of the Low-Income Refundable Tax Credit to the Refundable Food/Excise Tax Credit. Amends the adjusted gross income amounts and tax credit payout table. Defines “adjusted gross income” as a taxpayer’s federal adjusted gross income. (Act 211, SLH 2007)
Provides a $1 general income tax credit for 2008. (Act 58, SLH 2008)
Increases the State income tax check-off amount from $2 to $3 for deposit into the Hawaii Election Campaign Fund. (Act 244, SLH 2008)
Adopts the federal provision that excludes from an individual’s gross income a discharge of qualified principal residence indebtedness. Applies to discharges made after 2006 and before 2010. (Act 93, SLH 2008)
Adopts the federal provision that for sales after 2007, the maximum exclusion on the sale of a main home by an unmarried surviving spouse is $500,000 if the sale occurs no later than 2 years after the date of the other spouse’s death. (Act 93, SLH 2008)
Adopts the federal provision that for tax years beginning after 2007 and before 2011, gross income does not include: (1) Rebates or reductions of property or income taxes provided by a state or local government for providing services as a member of a qualified emergency response organization, and (2) Qualified payments made by a state or local government for providing services as a member of a qualified emergency response organization. (Act 93, SLH 2008)

Important Reminders for 2008

At the top of Form N-15, you must fill in the applicable oval to indicate whether you are a part-year resident or a nonresident. If one of the ovals is not filled in, your return may be processed incorrectly and may result in a delay. Also, fill in the applicable oval if you are a nonresident or dual-status alien.
Keep a copy of the worksheets you complete in the instructions for your records.
If you are unable to file by April 20, 2009, you are granted an automatic 6-month extension of time to file Form N-15 without filing Form N-101A (or any other form) unless an additional tax payment must be made. The extension of time to file is NOT an extension of time for payment of tax. You must file Form N-101A if you are making a payment. You may not use federal Form 4868 instead of Form N-101A.
Please complete all required entries on your tax return and make sure all required forms and statements are attached. Failure to do so may result in a notice of adjustment being sent to you and you may be required to file an amended tax return to correct missing entries or provide missing forms or statements.
Line 41 on Form N-15 MUST be filled in. Failure to do so could cause delays in processing your return.
Please be sure to fill in the appropriate filing status oval.
Please check all arithmetic on the return. A correct return will help us process your return efficiently and issue refunds quickly.
If you are married and filing separate returns, the refund from your spouse’s return cannot be applied to your liability.
Include your spouse’s social security number if you are married whether a joint or separate return is filed. If your spouse is an alien and was issued an ITIN by the IRS, enter your spouse’s ITIN. If your spouse has applied for an ITIN but the IRS has not yet issued the ITIN, write “ITIN Applied For” in the space below the "THIS SPACE RESERVED" box.
Attach your employee earning statements (HW-2’s or federal W-2’s) to the front of your return.
If someone prepares your tax return and charges you a fee, the preparer must sign and complete the Paid Preparer’s Information box.
Please file your return on or before April 20, 2009. Mail your return to the appropriate mailing address as stated on page 5.
Please place proper postage on the envelope before mailing. If there is insufficient postage on the envelope, it will be returned to you by the U.S. Postal Service.
Keep a copy of your return for your records.

Guidelines for Filling in Scannable Forms

Form N-15 and Schedule CR are designed for electronic scanning that permits faster processing with fewer errors. In order to avoid unnecessary delays caused by manual processing, taxpayers should follow the guidelines listed below:

Print amounts only on those lines that are applicable.
Use only a black ink pen. Do not use red ink or pencil nor felt tip pens.
Because this form is read by a machine, please print your numbers inside the boxes like this:

1 2 3 4 5 6 7 8 9 0 X
Do NOT print outside the boxes.
Fill in ovals completely.
Do NOT enter cents. All numbers that are required to be rounded to the nearest dollar should NOT be printed over the zeros printed in the handprint boxes used to designate cents.
Do NOT use dollar signs, slashes, dashes or parenthesis in the boxes.
Photocopying this form will cause delays in processing your return.

Who Must File

1. Every individual doing business in Hawaii during the taxable year must file a return, whether or not the individual derives any taxable income from that business. “Doing business” includes all activities engaged in or caused to be engaged in with the object of gain or economic benefit, direct or indirect, except personal services performed as an employee under the direction and control of an employer.For example, every person receiving rents from property owned in Hawaii is “doing business” and must file a return whether or not the person's expenses exceed the gross rental income.

2. Every individual receiving more than the following amounts of gross income subject to taxation under Hawaii Income Tax Law, including amounts received as salaries and wages for services rendered by an employee to an employer, must file a return:

For Individuals Under Age 65
Filing Status	Gross Income of
Married filing separately	$3,040
Single or legally separated	$3,040
Single, head of household	$3,960
Qualifying widow(er) with a dependent child	$5,040
Married couple filing jointly	$6,080

For Individuals Age 65 or older
Filing Status	Gross Income of
Married filing separately	$4,080
Single or legally separated	$4,080
Single, head of household	$5,000
Qualifying widow(er) with a dependent child	$6,080
Married couple filing jointly,oneis 65 or older	$7,120
Married couple filing jointly, both are 65 or older	$8,160

These threshold amounts will be higher for persons who are blind, deaf, or totally disabled, and who have completed and filed a certification with the Department of their disability on Form N-172 before filing their income tax return

For individuals who can be claimed as dependents on the tax return of another taxpayer, the threshold amount is the amount of the dependents' standard deduction.

For nonresident aliens, the threshold amount is $1,040 for individuals under 65, and $2,080 for individuals 65 or older.

For nonresident individuals, the threshold amounts stated above must be multiplied by the ratio of Hawaii adjusted gross income to total adjusted gross income from all sources to determine whether the individualmust file a return.

3. Individuals who took up residence inHawaii after attaining the age of 65 years and before July 1, 1976, may elect to be taxed only on Hawaii source income. See Election Under Act 60, SLH 1976 on page 5.

4. Children who receive unearned income during the taxable year and have not attained the age of 14 years before the end of the taxable year must file their own returns to report their income unless their parent or parents report that income.However, the Department of Taxation will, administratively, not require the filing of a State income tax return if the child's total earned and/or unearned income for the taxable year is $500 or less and the application of the standard deduction amount results in no taxable income for the child. Children who must file a return may need to file Form N-615, Computation of Tax for Children Under Age 14 Who Have Investment Income of More than $1,000. Parents may report income of their children by filing Form N-814, Parent's Election to Report Child's Interest and Dividends.

5. If you need to report additional tax from Form N-2, Distribution from an Individual Housing Account; Form N-103, Sale of Your Home; Form N-152, Tax on Lump-Sum Distributions; Form N-312, Recapture of Capital Goods Excise Tax Credit; Form N-318, Recapture of High Technology Business Investment Tax Credit; Form N-338, Recapture of Tax Credit for Flood Victims; Form N-405, Tax on Accumulation Distribution of Trusts; Form N-586, Recapture of Low-Income Housing Tax Credit; or Form N-814, Parent's Election to Report Child's Interest and Dividends, then youmust file a return regardless of income level.

Who Should File

Even if you do not have to file, you should file to get a refund if toomuch income tax was withheld from your pay. Also, if you are eligible for refundable credits, you need to file a return to claim the credits.

Residents and Nonresidents

Resident

A resident is taxed on income from all sources

A resident must file an Individual Income Tax Return—Resident (Form N-11 or N-13), if required to do so.

A Hawaii resident is (1) Every individual domiciled in Hawaii, and (2) Every other individual whether domiciled in Hawaii or not, who resides inHawaii for other than a temporary or transitory purpose.

An individual domiciled outside Hawaii is presumed to be a resident if he or she spends more than 200 days in Hawaii during the taxable year. This presumption may be overcome by evidence satisfactory to the Department of Taxation that the individual maintained a permanent place of abode outside the State and was in the State for a temporary or transitory purpose. No person shall be deemed to have gained or lost a residence simply because of his or her presence or absence in compliance with military or naval orders of the United States, while engaged in aviation or navigation, or while a student at any institution of learning. See Tax Information ReleaseNo. 97-1, “Determination of Residence Status”.

Nonresident

A Hawaii nonresident is an individual who is in Hawaii for a temporary or transient purpose, and whose permanent domicile is not Hawaii.

A nonresident must file an Individual Income Tax Return—Nonresident and Part-Year Resident (Form N-15), if required to do so. A nonresident will be taxed on income from Hawaii sources only.

A nonresident married to a Hawaii resident may choose to file a joint return with the resident spouse on Form N-11 or N-13; however, the nonresident will then be taxed on all income from all sources. For more information, see Married Filing Joint Return on page 7.

Election Under Act 60, SLH 1976

Individuals who took up residence in Hawaii after attaining the age of 65 years and before July 1, 1976, may elect to be taxed only on Hawaii source income. To make the election, attach a signed statement to Form N-11 setting forth the date that the individual established residence in Hawaii and the individual's date of birth (which must be before July 1, 1911). Individuals making this election must file a return regardless of the amount of income earned, and may not use Form N-13.

Part-Year Resident

A part-year resident is an individual who was a Hawaii resident for part of the year, and who was a nonresident during the other part of the year. This includes those who moved to Hawaii during the year and those who moved away from Hawaii during the year.

A part-year resident must file an Individual Income Tax Return—Nonresident and Part-Year Resident (Form N-15), if required to do so. A part-year resident will be taxed on all income from all sources during the period of residency, and on income from Hawaii sources only during the period of nonresidency.

Domicile Defined

The term “domicile” means the place where an individual has a true, fixed, permanent home and principal establishment, and to which place the individual has, whenever absent, the intention of returning. It is the place in which an individual has voluntarily fixed the habitation of himself or herself and family, not for a mere special or temporary purpose, but with the present intention of making a permanent home. Three things are necessary to create a new domicile: first, abandonment of the old domicile; second, the intent to establish a new domicile; and third, actual physical presence in the new domicile. Once a domicile is established, the intent to abandon it is not itself sufficient to create a new domicile; a new domicile must be shown.

Reminder: If you are in Hawaii because of military orders and do not intend tomakeHawaii your permanent home, you are not considered a Hawaii resident for income tax purposes, even though you have been in Hawaii formore than 200 days in 2008. File a resident return with your home state, and file aHawaii nonresident and part-year resident return (Form N-15) to report your Hawaii income.

Resident and Nonresident Examples

Note: For more information, see Tax Information Release No. 90-3, “Income Taxation and Eligibility for Credits of an Individual Taxpayer Whose Status Changes from Resident to Nonresident or from Nonresident to Resident”, Tax Information Release No. 90-10, “Clarification of Taxation and the Eligibility for Personal Exemptions and Credits of Residents and Nonresidents in the Military and Spouses and Dependents of Persons in the Military”, and Tax Information Release No. 97-1, “Determination of Residence Status”.

Example 1—A Hawaii resident who enlists in themilitary normally will remain aHawaii resident regardless of the length of absence from Hawaii while stationed outside of Hawaii.

Example 2—A Hawaii resident working in a foreign country will remain a Hawaii resident unless permanent resident status is granted by the foreign country.

Example 3—Foreign students who are granted entry into the United States on “F” visas are nonresidents for Hawaii tax purposes. Researchers and faculty members who are granted entry into the United States on “H”, “J”, or “Q” visas, and who have been in Hawaii for more than 200 days during the taxable year may be considered Hawaii residents.

Example 4—Spouses of those in the military service do not become Hawaii residents if their principal reason formoving toHawaii was the transfer of the service member spouse to Hawaii, and if it is their intention to leave Hawaii when the service member spouse either is transferred to another military station or leaves the service.

Example 5—A Hawaii resident who marries a nonresident will remain a Hawaii resident unless the three requirements for changing his or her domicile are also met. (Refer to “Domicile Defined” on this page.) This situation applies in reverse to a nonresident who marries a resident. A person's residence status will not change just because of marriage.

Which Form to File

You must file resident Form N-11 or N-13, as appropriate, if you were a resident for the full year. File Form N-15 if you were a nonresident for the full year or a part-year resident.

Generally, you MUST use Form N-11 if:

You were a resident for the full year, or, if married filing jointly, either spouse was a resident for the full year (however, the nonresident spouse would be taxed on their worldwide income for the full year).
But if you qualify to file Form N-13, you may file it instead of Form N-11.
You were a resident for the full year as described above and you file your return on a fiscal year basis.

You MUST use Form N-15 if:

You were a nonresident for the full year, or, if married filing jointly, both spouses were nonresidents for the full year.
You are taking up residence in Hawaii during the tax year. (Part-year resident).
You are giving up residence in Hawaii during the tax year. (Part-year resident).

You MAY Be Able to Use Form N-13 if:

You were a resident for the full year, or, if married filing jointly, either spouse was a resident for the full year (however, the nonresident spouse would be taxed on their worldwide income for the full year);
You had only wages, salaries, tips, interest, ordinary dividends, and unemployment compensation, AND
Your taxable income (adjusted gross income less standard deduction and personal exemptions) is less than $100,000.

Form N-13 is a simplified form. However, Form N-11 may allow you to pay less tax.

If you are eligible to file Form N-13 but you filed a federal resident return, you may want to file Form N-11 instead because it uses information you already entered on your federal return.

To see if you qualify to use Form N-13, see the instructions for Form N-13.

When to File

Note: If any due date falls on a Saturday, Sunday, or legal holiday, substitute the next regular work day as the due date.

You should file as soon as you can after January 1, but not later thanApril 20, 2009. If you file late, you may have to pay penalties and interest if you owe taxes on your return. Please see the instructions for Penalties and Interest on page 29. If you cannot meet the deadline, you are not required to file Form N-101A, Application for Automatic Extension of Time to File Hawaii Individual Income Tax Return, (or any other form) to request an automatic 4-month extension of time to file Form N-11. As long as the following conditions are met, you are deemed to have made an application for the 6-month extension to file an income tax return
on the prescribed due date:

On or before April 20, 2009, 100% of the properly estimated tax liability is paid;
The tax return is filed on or before the expiration of the 6-month extension period;
The tax return is accompanied by full payment of any tax not already paid; and
You are not bound by a court order to file a tax return on or before the prescribed due date.

If youmust make an additional payment of tax on or before April 20, 2009 in order to meet the condition requiring payment of 100% of the properly estimated tax liability, you must file Form N-101A with your payment. The extension of time to file is not an extension of time for payment of tax.

Form N-101A can be filed and payment made electronically through the State’s Internet portal. For more information, go to www.ehawaii.gov/efile. Federal Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, may not be used in lieu of Form N-101A.

Note: Returns for fiscal year taxpayers must be filed on or before the 20th day of the fourth month following the close of the fiscal year.

Note: Under Hawaii Income Tax Law, certain tax credits must be claimed within 12 months from the close of the tax year.

The official U.S. Post Office cancellation mark will be considered primary evidence of the date of filing of tax documents and payments. If you want to keep evidence that you mailed your return on time, ask your Post Office for a Certificate of Mailing. It is NOT necessary to get a certified or registeredmail return receipt.

Hawaii has adopted the Internal Revenue Code provision to allow documents and pay- Page 5 ments delivered by a designated private delivery service to qualify for the “timely mailing treated as timely filing/paying rule.” The Department of Taxation will conform to the Internal Revenue Service listing of designated private delivery service and type of delivery services qualifying under this provision. Timely filing of mail which does not bear the U.S. Post Office cancellation mark or the date recorded or marked by the designated delivery service will be determined by reference to other competent evidence. The private delivery service can tell you how to get written proof of the mailing date.

Where to File

If you are enclosing a check ormoney order with your tax return, mail your return with payment to:

Hawaii Department of Taxation
Attn: Payment Section
P. O. Box 1530
Honolulu, Hawaii 96806-1530

If you are NOT enclosing a check or money order with your tax return, mail your return to:

Hawaii Department of Taxation
P. O. Box 3559
Honolulu, Hawaii 96811-3559

If two pre-addressed envelopes were received with your forms, please use the appropriate envelope as stated above.

Where to Get Information

Taxpayer Services Branch

Website: www.hawaii.gov/tax

E-mail: Taxpayer.Services@hawaii.gov

Telephone: 808-587-4242

Toll-Free: 1-800-222-3229

Telephone for the hearing impaired: 808-587-1418

Toll-Free: 1-800-887-8974

Tax forms by Fax/Mail: 808-587-7572

Toll-Free: 1-800-222-7572

Other Information

Death of Taxpayer

Did the taxpayer die before filing a return for 2008? If so, the taxpayer’s spouse or personal representative may have to file a return and sign it for the person who died (decedent) if the decedent was required to file a return. A personal representative can be an executor, administrator, or anyone who is in charge of the taxpayer’s property.

If the decedent did not have to file a return but either had State income tax withheld, made estimated tax payments, or is eligible for various tax credits, a return must be filed to get a refund.

If your spouse died in 2008 and you did not remarry in 2008, or if your spouse died in 2009 before filing a return for 2008, you may still file a joint return for the 2008 tax year.

A return filed for a deceased taxpayer, including a joint return with a surviving spouse, must have the word “DECEASED” written on the top middle of the return. The words “TAXPAYER DECEASED” or "SPOUSE DECEASED" and the date of death also must be written in the space below the "THIS SPACE RESERVED" box.

Generally, the personal representative or other responsible individual must sign the return on behalf of the decedent. If a refund is due, Form N-110, Statement of Person Claiming Refund Due a Deceased Taxpayer, must be completed and attached to the return to ensure that the refund checkwill be issued in the name of the surviving spouse, personal representative, or other responsible individual instead of in the decedent’s name. A personal representative or other individual may be required to attach other documents such as the death certificate. See Form N-110 for further information.

Exception for joint returns filed by surviving spouse. If a joint return is being filed by the decedent and the decedent’s spouse, the spouse should write, “Filing as surviving spouse”, on the signature line which the decedent would have signed, and then the surviving spouse should sign his or her name on the other signature line. If a refund is being claimed on the return, Form N-110 is not required. The refund check will be issued to the surviving spouse.

Declaration of Estimated Tax

Basic rules. Individuals who must pay more tax than is withheld, or who have no withholding, may have to file a declaration of estimated tax and pay that tax in a lump sum or installments. Income tax obligations might not be satisfied through withholding when an individual has income not subject to withholding, such as from self-employment, rent, gains from sales of property, interest and dividend income, unemployment compensation, or distributions from deferred compensation plans.

Who Must File a Declaration on Form N-1. An individual subject to Hawaii net income tax generally must file Form N-1, Declaration of Estimated Tax for Individuals, unless: (a) his or her estimated tax liability for the taxable year, after taking into account all taxes withheld or collected at the source, is less than $500, or (b) the taxpayer did not have any tax liability for the preceding taxable year. See Form N-1 for details. Form N-1 can be filed and payment made electronically through the State’s Internet portal. For more information, go to www.ehawaii.gov/efile.

Date and Payment of Estimated Tax. Your declaration for 2009 must be filed on or before April 20, 2009. The tax may be paid in full with the declaration, or in equal installments on or before April 20, 2009, June 20, 2009, September 20, 2009, and January 20, 2010. Each installment payment must be submitted with a payment voucher. Make checks or money orders payable to the “Hawaii State Tax Collector”.

Penalties. If you are required to file a declaration but you fail to do so, youmay be subject to penalties. SeePenalties and Interest on page 33.

Multistate Tax Compact Act

Any taxpayer, other than a corporation acting as a business entity in more than one state, who is required by the Hawaii Income Tax Law to file a return and whose only activities in the State consist of sales and who does not own or rent real estate or tangible personal property and whose annual gross sales in or into the State during the tax year are not in excess of $100,000 may elect to report and pay a tax of .5 percent of such annual gross sales. Taxpayers who elect the foregoing shall file Form N-310 in lieu of Form N-15.

Composite Tax Returns and Payments

Composite tax returns and composite tax paymentsmay be made on behalf of nonresident shareholders of an S corporation, nonresident partners of a partnership, and nonresident members of a limited liability company or limited liability partnership. Instructions for filing a composite Form N-15 for nonresident shareholders, partners, and members are included in the instructions for Forms N-20 and N-35.

Election to File Form N-15 Without Providing Information as to Worldwide Source Income

In lieu of providing information as to worldwide source income, nonresident taxpayers (including nonresident alien taxpayers) and part-year resident taxpayers may elect to file Form N-15 without claiming any standard deduction or personal exemption amounts. Itemized deductions calculated using the ratio of Hawaii adjusted gross income to Total adjusted gross income may not be claimed. Also, tax credits which are based on total adjusted gross income from all sources may not be claimed. To make this election, enter zero on line 37, Ratio of Hawaii AGI to Total AGI.

Steps for Preparing Your Return

These instructions consist of 12 steps. You should complete the first 3 steps that follow BEFORE you begin to fill in your return.

Steps 4 and 5, filling in the return through line 6e, begin on page 7 and end on page 10. Step 6, filling in the rest of the return, is on page 10. The Line-By-Line Instructions for Form N-15 begin on page 10 and end on page 32.

Finally, steps 7 through 12 begin on page 32. These are the steps you should take after your Form N-15, and other schedules and forms you need, are filled in.

If you follow these steps and read the Line-By-Line Instructions, we feel you can fill in your return quickly and accurately. If you have any questions, call our Taxpayer Services staff.

Special Instructions for Nonresident Aliens

Special rules will apply to you if you are considered a nonresident alien or a dual-status alien. For Hawaii income tax purposes, a nonresident alien is an individual who is not a U.S. citizen, and who has not been in Hawaii for more than 200 days during the taxable year, or is in Hawaii for a temporary or transient purpose. A dual-status alien is a person who was a resident alien for part of the year and a nonresident alien for the other part of the year.

The special rules for nonresident and dual-status aliens will not apply if you elect to be taxed as a resident alien on your federal income tax return. You can make this election if either of the following applies to you:

You were a nonresident alien on the last day of the tax year, and your spouse was a U.S. citizen or resident alien on the last day of the tax year.
You were a nonresident alien at the beginning of the tax year, but you were a resident alien on the last day of the tax year and your spouse was a U.S. citizen or resident alien on the last day of the tax year. (This also applies if both you and your spouse were nonresident aliens at the beginning of the tax year and both were resident aliens at the end of the tax year.)

See federal Publication 519, U.S. Tax Guide for Aliens, for complete definitions of “resident alien”, “nonresident alien”, and “dual-status alien”.

In certain situations, a taxpayer may be considered a nonresident alien for federal income tax purposes and a resident for Hawaii income tax purposes. In these situations, the special rules applicable to individuals who are considered nonresident aliens for federal income tax purposes will apply when the individual files a Hawaii resident income tax return. See Tax Information Release No. 97-1, “Determination of Residence Status”.

Step 1

Get all of your income records together.

These include any Forms HW-2 and federal FormsW-2 or 1099 that you received. If you don’t receive a Form HW-2 or federal Form W-2 by January 31, or if the one you get isn’t correct, please contact your employer as soon as possible. Only your employer can give you a Form HW-2 or federal Form W-2, or correct it. If you cannot get a Form HW-2 or federal Form W-2 by February 15, please contact our Taxpayer Services staff.

If you have someone prepare your return for you, make sure that person has all your income and expense records so he or she can fill in your return correctly. Remember, even if someone else prepares your return incorrectly, YOU are still responsible.

Step 2

If you plan to claim tax credits or itemize deductions, get the information and expense records you need.

These instructions tell you what credits and deductions you can claim. Some of the records you may need are:

Medical and dental payment records.
Real estate and income tax receipts.
Interest payment records for a home mortgage.
Receipts for charitable contributions.

Step 3

Get any forms, schedules, or information you need.

All forms and instructions you need may be picked up at any district tax office. You may also request that the forms and publications be mailed to you. Please allow approximately 10 days for the mailing of the tax forms. Tax forms are also available on the Internet. See page 6 for the phone number to request the forms you need and for the Department’s website address.

Step 4

Fill in the applicable oval to indicate whether you are a part-year resident or nonresident. Also, fill in the applicable oval if you are a nonresident alien or dual-status alien.

At the top of Form N-15, you must fill in the applicable oval to indicate whether you are a part-year resident or nonresident. If one of the ovals is not filled in, your return may be processed incorrectly and may result in a delay. Also, fill in the applicable oval if you are a nonresident alien or dual-status alien.

If you are a part-year resident, you must fill in the period of your Hawaii residency on the line which begins “Tax Year . . .” If the part-year resident oval is filled in and the line to indicate the taxpayer’s tax year is not completed, any claims for the refundable food/excise tax credit, credit for low-income household renters, or credit for $1 general income tax will be disallowed.

Step 5

Fill in your name, address, filing status, and exemptions.

Note: Enter your social security number and name at the top of Form N-15, pages 2, 3, and 4. If you are married and filing a joint return, also enter your spouse’s social security number and name at the top of Form N-15, pages 2, 3, and 4.

If you requested a forms booklet, take the mailing label from the booklet we sent to you and make sure the information is correct. If any information is incorrect, do not use the mailing label. Instead, print the entries in this section.

After you have completed and checked all entries, attach your label (if the information is correct) to the return over the mailing address area where indicated. Use of the label helps us identify your account, saves processing time, and speeds refunds.

Do not attach your label to the envelope. It may get separated from your return.

If you did not receive a label, print the entries in this section.

Note:Your social security number is no longer printed on the mailing label. You must write your social security number in the boxes provided on your tax return.

Note: You must write the first four letters of your last name in the boxes provided. If you are married, you must also write the first four letters of your spouse’s last name in the boxes provided whether joint or separate returns are filed.

Note: Fill in the appropriate oval if you are filing a tax return for the first time or if your address or name has changed.

Name

You must use your legal name. Nicknames are not permitted. If you have changed your name because of marriage, divorce, etc., make sure you immediately notify the Social Security Administration so that the name on your tax return is the same as the name on the social security records. If these names do not match, your refund may be delayed.

If you file joint returns, write the names in the same order every year. There is a separate line for the spouse’s name.

Write any descriptions (e.g. Jr., III, etc.) after your last name.

Address

Write your current mailing address in the space provided. If you receive your mail “in care of” someone else (i.e., your mail is sent to an address belonging to someone other than yourself), fill in that person’s name in the space provided.

If your address is outside the United States or its possessions or territories, enter the city in the space provided for “City, town or post office”, and enter the postal code in the space provided for “Postal/ZIP code.” Enter the province and/or state, and the name of the country in the space provided. Do not abbreviate the country name.

Important: If your address should change after you file your return, you must notify the Department in writing of your new address. Please include your social security number and your signature. Any refund checks due to youwill not be forwarded to your new address by the U.S. Postal Service.

Social Security Number

Write your social security number in the boxes provided. If you are married, youmust also write your spouse’s social security number in the boxes provided whether joint or separate returns are filed. Your social security numbers must be written in the same order as your names are written on your return

If you are an alien and were issued an individual taxpayer identification number (ITIN) by the IRS, enter your ITIN. If you have applied for an ITIN but the IRS has not yet issued the ITIN, write “ITIN Applied For” in the space below the "THIS SPACE RESERVED" box.

Filing Status

Fill in oval 1, 2, 3, 4, or 5 as appropriate. Fill in only one oval.

Note: More than one filing status may apply to you. Choose the one that will give you the lowest tax. Your Hawaii filing status may or may not be the same as your federal filing status.

Single

Select oval 1, Single, if on December 31, 2008, you were unmarried, divorced, or separated from your spouse under a separate maintenance decree. State law governs whether you are married, divorced, or legally separated.

If you are married on December 31, 2008, consider yourself married for the whole year.

If your spouse died during 2008, consider yourself married to that spouse for the whole year, unless you remarried before the end of 2008.

If you are unmarried and provide a home for certain other persons, you may be able to file as Head of Household. SeeHead of Household on page 8.

If you were married in 2008, had a child living with you, and lived apart from your spouse during the last 6 months of 2008, you may be able to file as Head of Household. See Married Persons Who Live Apart on page 8.

Married Filing Joint Return

If you file a joint return, you must report all income, exemptions, deductions, and credits for you and your spouse. Both of you must sign the return, even if only one of you had income.

You and your spouse can file a joint return even if you did not live together for the whole year. Both of you are responsible for any tax due on a joint return, so if one of you doesn’t pay, the other may have to.

Note: If you and your spouse file a joint return for the year and later decide to file separately, both you and your spouse MUST file amended returns on or before the due date of the original return (April 20). Youmay not change your filing status frommarried filing jointly to married filing separately after that date.

If your spouse died in 2008 or in 2009 before filing a return for 2008, see Death of Taxpayer on page 6.

Tax Savings. If you decide not to file a joint return and plan to file a separate return, see if you can lower your tax by meeting the tests described on page 8 under Married Persons Who Live Apart. If you can, you should fill in oval 4 for Head of Household.

Special Rule for Nonresidents of Hawaii Who File a Joint Return With a Hawaii Resident. If at the end of the taxable year you were a nonresident of Hawaii (but you were a U.S. resident) who is married to a resident of Hawaii, youmay choose to file a joint return with the resident spouse. By filing a joint return, however, you and your spouse agree to be taxed on your combined worldwide income.

Special Rule for Nonresident and Dual-Status Aliens. Generally, you cannot file a joint return if either spouse was a nonresident alien at any time during the tax year. However, nonresident aliens married to U.S. citizens or residents can elect to be taxed as a U.S. resident on their federal income tax return and file joint returns. If you and your spouse have made that election on your federal return, you also may choose to file a joint Hawaii return. By filing a joint return, you and your spouse agree to be taxed on your combined worldwide income.

Special RuleWhen One Spouse Is a Nonresident or Part-Year Resident. If one spouse is a resident and the couple files a joint return, both spouses are taxed on worldwide income. If at least one spouse is a part-year resident and the couple files a joint return, the couple is taxed on worldwide income for the period in which either spouse was a resident.

Note:For purposes of filing a joint return, commonlaw marriages are not recognized under Hawaii law unless they began in a state which permitscommon law
marriages.

Married Filing Separate Returns

You may file separate returns whether both you and your spouse had income, only one of you had income, or neither of you had income.

If you choose to file separate returns, both you and your spousemust figure your tax the same way. This means that if one of you itemizes your deductions, the other must also itemize their deductions. You each report only your own income, exemptions, deductions, and credits, and you are responsible only for the tax due on your own return.

If you file a separate return, write your spouse’s full name in the space after oval 3. Also, write the first four letters of your spouse’s last name and your spouse’s social security number in the boxes provided.

If your spouse does not file a Hawaii tax return, you may be able to claim the exemptions for your spouse. See the instructions for lines 6a and 6b.

Special Rule for Nonresident and Dual-Status Aliens.-Married nonresident aliens must file separate returns. However, nonresident aliens who aremarried to U.S. citizens or residents and who elect to be taxed as a U.S. resident may file joint returns. However, see Married Persons Who Live
Apart on this page.

Head of Household

This filing status is for unmarried individuals who provide a home for certain other persons. (Some married persons who live apart are considered unmarried. See Married Persons Who Live Apart on this page.) You can fill in oval 4 only if you were unmarried or legally separated (according to State law) under a decree of divorce or separate maintenance at the end of 2008 and either 1 or 2 below applies.

You paid over half the cost of keeping up a home that was the main home for all of 2008 of your parent whom you can claim as a dependent, except under a multiple support agreement (see page 10). Your parent did not have to live with you.
You paid over half the cost of keeping up a home in which you lived and in which one of the following also lived for more than half of the year (if half or less, see Exception to Time Lived With You below).
1. Any person whom you can claim as a dependent. But do not include:
  - Your qualifying child (as defined in Step 1 on page 9) whom you claim as your dependent based on the rules for Children of Divorced or Separated Parents on page 9,
  - Any person who is your dependent only because he or she lived with you for all of 2008, or
  - Any person you claimed as a dependent under a multiple support agreement. See page 10.
2. Your unmarried qualifying child who is not your dependent.
3. Your married qualifying child who is not your dependent only because you can be claimed as a dependent on someone else’s 2008 return.
4. Your child who is neither your dependent nor your qualifying child because of the rules for Children of Divorced or Separated Parents on page 9.

If the child is not your dependent, enter the child’s name on line 4.

Dependent. To find out if someone is your dependent, see the instructions for line 6c that begin on page 9.

Exception to time lived with you. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, and detention in a juvenile facility, count as time lived in the home. If the person for whom you kept up a home was born or died in 2008, you can still file as head of household as long as the home was that person’s main home for the part of the year he or she was alive. Also see Kidnapped Child on page 10, if applicable.

Keeping up a home. To find out what is included in the cost of keeping up a home, see federal Publication 501.

Note: If you received payments under the Aid to Families with Dependent Children (AFDC) program and used them to pay part of the cost of keeping up this home, you may not count these amounts as furnished by you.

Special Rule for Nonresident and Dual-Status Aliens.-If you were a nonresident or dual-status alien during the tax year, you cannot file as Head of Household.

Married persons who live apart. Even if you were not divorced or legally separated at the end of 2008, you are considered unmarried if all of the following apply.

You lived apart from your spouse for the last 6 months of 2008. Temporary absences for special circumstances, such as for business, medical care, school, or military service, count as time lived in the home.
You file a separate return from your spouse.
You paid over half the cost of keeping up your home for 2008.
Your home was the main home of your child, stepchild, or foster child for more than half of 2008 (if half or less, seeException to Time Lived With You on page 10).
You claim this child as your dependent or the child’s other parent claims him or her under the rules for Children of Divorced or Separated Parents on page 9.

Adopted child. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

Foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

Special Rule for Nonresident and Dual-Status Aliens.-If you were a nonresident or dual-status alien during the tax year, the special rules for Married Persons Who Live Apart will not apply to you unless you meet all of the tests previously stated, and you are a resident of Canada or Mexico. If you are considered unmarried under these rules, you may file as a single individual rather than married filing separately. You cannot file as Head of Household.

Qualifying Widow(er) With Dependent Child

You can fill in oval 5 and use joint return tax rates for 2008 if all of the following apply.

Your spouse died in 2006 or 2007 and you did not remarry in 2008.
You have a child or stepchild whom you claim as a dependent. This does not include a foster child.
This child lived in your home for all of 2008. If the child did not live with you for the required time, see Exception to Time Lived With You below.
You paid over half the cost of keeping up your home.
You could have filed a joint return with your spouse the year he or she died, even if you did not actually do so.

If your spouse died in 2008, you cannot file as qualifying widow(er) with dependent child. Instead, see the instructions for Married Filing a Joint Return on page 7.

Adopted child. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

Dependent. To find out if someone is your dependent, see the instructions for line 6c that begin on page 9.

Exception to time lived with you. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, and detention in a juvenile facility, count as time lived in the home. A child is considered to have lived with you for all of 2008 if the child was born or died in 2008 and your home was the child’s home for the entire time he or she was alive. Also see Kidnapped Child on page 10, if applicable.

Keeping up a home. To find out what is included in the cost of keeping up a home, see federal Publication 501.

Note: See Death of Taxpayer on page 6 for more information.

Special Rule for Nonresident and Dual-Status Aliens.-The special rules for Qualifying Widow(er) With Dependent Child will not apply unless the surviving spouse meets all of the tests previously stated, and was a resident alien or U.S. citizen the year their spouse died. The residency status refers to the surviving spouse’s actual status, and not the election that some nonresident aliens make to be taxed as U.S. residents.

Exemptions

Lines 6a and 6b

Regular

You can take one exemption for yourself unless you can be claimed as a dependent on another person's tax return. Take two exemptions if you are married and filing a joint return.

If you are married filing separately, you can take your spouse's exemption only if your spouse is not filing a return, had no income, andwas not the dependent of someone else. If your spouse meets these qualifications, fill in the oval under line 6b.

If at the end of the taxable year, you were divorced or legally separated, you cannot take an exemption for your former spouse. If youwere separated by a divorce that is not final (interlocutory decree), you may take an exemption for your spouse if you file a joint return.

If your spouse died during the taxable year and you did not remarry before the end of the taxable year, fill in the ovals for the exemptions you could have taken for your spouse on the date of death.

Age 65 or Over

You can take the extra exemption for age 65 or over only for yourself and your spouse. You cannot take them for your dependents.

Age is determined as of December 31. However, if your 65th birthday was on January 1, 2009, you can take the extra exemption for age in 2008.

If you are married filing separately, you may NOT claim the extra exemption for age 65 or over for your spouse.

Lines 6c and 6d

Children and Other Dependents

Enter the number of your dependent children in the box for line 6c. Enter the number of other dependents in the box for line 6d.Enter on lines 6c and 6d the full names, social security numbers, and other information for your dependent children and other dependents. Each dependent must have a social security number.

Follow the steps below to find out if a person qualifies as your dependent.

Step 1: Do You Have A Qualified Child?

A qualifying child is a child who is your:

Son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew), and
Was under age 19 at the end of 2008, or under age 24 at the end of 2008 and a student, or any age and permanently and totally disabled, and
Who did not provide over half of his or her own support for 2008, and
Who lived with you for more than half of 2008. If the child did not live with you for the required time, see Exception to Time Lived With You on page 10.

1. Do you have a child who meets the conditions to be your qualifying child?

Yes. Go to Step 2.
No. Go to Step 3.

Step 2: Is Your Qualifying Child Your Dependent?

Was the child a U.S. citizen, U.S. national, or a resident of the United States, Canada, or Mexico? If the child was adopted, see Exception to Citizen Test on page 10.
Yes. Go to Question 2.
No. Stop. Go to Form N-11, line 7.
Was the child married?
Yes. See Married Person on page 10.
No. Go to Question 3.
Could you, or your spouse if filing jointly, be claimed as a dependent on someone else's 2008 tax return?
Yes. You cannot claim any dependents.
No. You can claim this child as a dependent.

Step 3: Is Your Qualifying Relative Your Dependent?

A qualifying relative is a person who is your:

Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, or a son or daughter of either of them (for example, your niece or nephew), or Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), or Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father- in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship does not violate local law. If the person did not live with you for the required time, see Exception to Time Lived With You on page 10, and
Who was not a qualifying child of any person for 2008, and
Who had gross income of less than $3,500 in 2008. If the personwas permanently and totally disabled, see Exception to Gross Income Test on page 10, and
For whom you provided over half of his or her support in 2008. But see the exceptions for Children of Divorced or Separated Parents below, and Multiple Support Agreements and Kidnapped Child on page 10.

Does any person meet the conditions to be your qualifying relative?
Yes. Go to Question 2.
No. Stop. Go to Form N-11, line 7.
Was your qualifying relative a U.S. citizen, U.S. national, or a resident of the United States, Canada, or Mexico? If your qualifying relative was adopted, see Exception to the Citizen Test on page 10.
Yes. Go to Question 3.
No. Stop. Go to Form N-11, line 7.
Was your qualifying relative married?
Yes. See Married Person on page 10.
No. Go to Question 4.
Could you, or your spouse if filing jointly, be claimed as a dependent on someone else's 2007 tax return?
Yes. Stop. You cannot claim any dependents.
No. You can claim this person as a dependent.

Definitions and Special Rules.

Adopted child. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

Children of divorced or separated parents. A child will be treated as being the qualifying child or qualifying relative of his or her noncustodial parent (the parent who had custody of the child for the lesser part of 2008 or did not have custody at all ) if all of the following apply.

The parents are divorced, legally separated, separated under a written separation agreement, or lived apart at all times during the last 6 months of 2008.
The child received over half of his or her support for 2008 from the parents (without regard to the rules on Multiple Support Agreements on page 10).
The child is in custody of one or both of the parents for more than half of 2008.
Either of the following applies.
- The custodial parent signs federal Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for 2008. The noncustodial parent must attach federal Form 8332 or a similar statement to his or her tax return to claim the child as a dependent.
- A decree of divorce or separate maintenance or written separation agreement between the parents that applies to 2008 provides that the noncustodial parent can claim the child as a dependent. If your decree or agreement went into effect before 1985, the noncustodial parent must provide at least $600 for support of the child during 2008.

If the rules above apply and this child would otherwise be the qualifying child of more than one person:

Only the noncustodial parent can claim the child for purposes of the dependency exemption.
Only one person can file as head of household. No other person can file as head of household unless he or she has a different qualifying child. If you and any other person claim the child as a qualifying child, the rules shown under Qualifying Child of More Than One Person on this page will apply.

See federal Publication 501 for more details.

Exception to citizen test. If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, that child meets the citizen test

Exception to gross income test. If your relative (including a person who lived with you all year as a member of your household) is permanently and totally disabled (defined on this page), certain income for services performed at a sheltered workshop may be excluded for this test. For details, see federal Publication 501.

Exception to time lived with you. A person is considered to have lived with you for all of 2008 if the person was born or died in 2008 and your homewas this person's home for the entire time he or she was alive. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a juvenile facility, count as time lived with you. Also see Children of Divorced or Separated Parents on page 9, or Kidnapped Child on this page.

Foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

Kidnapped child. If your child is presumed by law enforcement authorities to have been kidnapped by someone who is not a family member, you may be able to take the child into account in determining your eligibility for head of household or qualifying widow(er) filing status, and the deduction for dependents. See federal Publication 501.

Married person. If the person is married, you cannot claim that person as your dependent if he or she files a joint return. But this rule does not apply if the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns. If the personmeets this exception, go to Step 2, Question 3, on page 9 (for a qualifying child) or Step 3, Question 4, on page 9 (for a qualifying relative). If the person does notmeet this exception, stop. Go to Form N-11, line 7.

Multiple support agreements. If no one person contributed over half of the support of your relative (including a person who lived with you all year as a member of your household) but you and another person(s) provided more than half of your relative's support, special rules may apply that would treat you as having provided over half of the support. For details, see federal Publication 501.

Permanently and totally disabled. A person who, at any time in 2008, cannot engage in any substantial gainful activity because of a physical or mental condition and a doctor has determined that this condition (a) has lasted or can be expected to last continuously for at least a year, or (b) can be expected to lead to death.

Qualifying child of more than one person. If the child is the qualifying child of more than one person, only one person can claim the child as a qualifying child for (1) the dependency exemption, and (2) head of household filing status, unless the rules for Children of Divorced or Separated Parents on page 9 apply.

No other person can take any of the two tax benefits listed above unless he or she has a different qualifying child. If you and any other person claim the child as a qualifying child, the following rules will apply.

If only one of the persons is the child's parent, the child will be treated as the qualifying child of the parent.
If two of the persons are the child's parents, the child will be treated as the qualifying child of the parent with whom the child lived for the longer period of time in 2008. If the child lived with each parent for the same amount of time, the child will be treated as the qualifying child of the parent who had the higher adjusted gross income (AGI) for 2008.
If none of the persons is the child's parent, the child will be treated as the qualifying child of the person who had the highestAGI for 2008.

Example. Your daughter meets the conditions to be a qualifying child for both you and your mother. If you and your mother both claim tax benefits based on the child, the rules above apply. Under these rules, you are entitled to treat your daughter as a qualifying child for any of the two tax benefits listed above for which you otherwise qualify. Your mother would not be entitled to take any of the two tax benefits listed above unless she has a different qualifying child.

If you will be claiming the child as a qualifying child, go to Step 2 on page 9. Otherwise, stop; you cannot claim any benefits based on this child.

Student. A child who during any part of 5 calendar months of 2008 was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or Internet school.

Birth or Death of Dependent. You can take an exemption for a dependent who was born or who died during the taxable year if he or shemet the tests for a dependent while alive. This means that a baby who lived only a few minutes can be claimed as a dependent.

Line 6e

Add the numbers you entered in the boxes 6a, 6b, 6c and 6d. Enter the total in the box on line 6e.

Step 5

Fill in your return.

Line-By-Line instructions for filling in Form N-15 begin on this page and end on page 32. Please read and follow the instructions carefully.

Line-By-Line Instructions- Form N-15

Lines 7 through 36

Form N-15 has two columns for lines 7 through 36; Total Income, Column A and Hawaii Income, Column B.

Youmust report in Column A, your total income (regardless of source) and adjustments to your total income as if you were a full year Hawaii resident. Your total income and adjustments may not be the same as that reported on your federal income tax return. For example, social security benefits should not be reported in Column A.

If you are a nonresident, report in Column B, only income derived from Hawaii sources and the allowable adjustments to your Hawaii income.

If you are a part-year resident, report in Column B, your total income (regardless of source) and adjustments to your total income during the period of residency, and only income derived from Hawaii sources and the allowable adjustments to your Hawaii income for the period of nonresidency. The following is a general discussion of income from Hawaii sources, and allowable adjustments to Hawaii income.

Income

Nonresidents should report in Column B, gross income from property owned, personal services performed, trade or business carried on, and every other source in the State (Hawaii). Part-year residents should report in Column B, gross income (regardless of source) for the period of residency, and gross income from property owned, personal services performed, trade or business carried on, and every other source in the State (Hawaii) for the period of nonresidency.

In determining whether income has its source in the State or outside the State, the following rules should be applied:

The source of income from either real or tangible personal property, is the place where the property is “owned”, which means the place where the property has its situs.
Intangible property will be deemed to have its situs at the place of the owner’s domicile, unless the property has acquired a business situs at another place, in which event, the place of the business situs is the place where the property is owned.
Chattel real, such as a leasehold, has its situs where the real property is located.
The source of income from carrying on a trade or business is the place where the trade or business is carried on. If the trade or business is carried on both within and without the State, the portion of the income attributable to the State should be determined as provided by section 235-5, HRS.
Income from the performance of personal services has its source at the place where the services are performed.
A gain or loss on the sale or other disposition of property has its source at the place where the property was owned, that is, where it had its situs, at the time of the sale or other disposition.

Examples of Includable and Excludable Income

The following examples will help you understand what kind of Hawaii source income must be reported as Gross Income in the Hawaii Gross Income Column B of your income tax return during the period of nonresidency, and what items are exempt from tax.

Examples of Income You Must Report

The following kinds of income should be reported on Form N-15, Column B, and related forms and schedules.

Wages, including salaries, bonuses, commissions, fees, and tips.
U.S. Cost of Living Allowances.
Living Quarter Allowances.
Interest on:
- Hawaii tax refunds;
- Interest received from an agreement of sale of real property located in Hawaii.
Unemployment compensation benefits received from Hawaii.
Temporary Disability Insurance Benefits received in Hawaii to the extent that such amounts:
- are attributable to contributions by your employer which were not includable in your gross income, OR
- are paid by your employer.
Business expense reimbursements you received as an employee in Hawaii that are more than you spent for those expenses.
Refunds of State and local taxes if you deducted the taxes in an earlier year and got a tax benefit. See details on page 12 of instructions.
Gains or losses from the sale or exchange of Hawaii real estate, securities, or other property.
Profits or losses from Hawaii businesses or professions.
Your share of profits or losses from partnerships and small business corporations carried on in Hawaii.
Your share of trust or estate income or losses from activities carried on in Hawaii.
Rent from property located in Hawaii.
Contest prizes with source in Hawaii.
Certain alimony and separate maintenance payments. Refer to the instructions for Alimony Paid on page 19.
Capital gains and losses from assets with situs in Hawaii.

Example: Hawaii Income of a Part-Year Resident.

T, an unmarried cash basis calendar year taxpayer, was a resident of Arizona on January 1, 2008. T moved to Hawaii on April 1, 2008, and continued to work as an insurance agent. T is a Hawaii resident for the remainder of 2008.

On March 20, 2008, T received $20,000 as gain from the sale of Arizona real property held for investment. The $20,000 gain is out-of-state income earned when T was a nonresident. None of it should be reported in Column B.
T earned commissions of $25,000 for policies sold after April 1, 2008. The commissions are from a trade or business carried on in Hawaii, and are Hawaii source income. The commissions were earned when T was a Hawaii resident. All of these commissions should be reported in Column B.
T also earned initial and renewal commissions of $12,000 for policies sold before April 1, 2008, $4,000 of which T earned before April 1, 2008. The $12,000 in commissions earned before April 2008 is from a trade or business carried on in Arizona, and is thus out-of-state income. However, only $4,000 was earned when T was a nonresident. The remaining $8,000 should be reported in Column B.
Finally, T had signed a business consulting contract with one Arizona client, for which T was paid an additional $1,200 for services rendered throughout the year. It cannot be determined whether the remaining $1,200 in commission income was generated while T was a Hawaii resident. Thus, because T was a resident for nine months in 2008, 9/12 x $1,200, or $900, shall be reported in Column B unless T demonstrates otherwise to the satisfaction of the Department.

Examples of Income You Do Not Report

Pensions from a private employer pension plan you receive upon retirement where no employee contributions are involved.

All Government payments and benefits made to veterans and their families.
Dividends on veterans’ Government Insurance.
Dividends from stocks. Generally, the source of income from an intangible asset (e.g. stock of a corporation) is the owner’s place of permanent residence or domicile. This means that a nonresident owning intangible assets and receiving income therefrom, even though the dividend may have been paid by a Hawaii corporation, would not be subject to Hawaii income tax because the nonresident’s permanent residence or domicile is not Hawaii. However, such income would be subject to Hawaii income tax if the intangible asset acquired a situs in Hawaii.
Pension or annuity distributions from a public (i.e., government) retirement system (e.g., federal civil service annuity, military pension, state or county retirement system).
Workers’ compensation, insurance, damages, etc., for bodily injury or sickness.
Interest on Federal, Hawaii State and County municipal bonds. Also, U.S. Savings Bonds.
Interest on bonds issued by the Governments of Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa.
Life insurance proceeds upon death.
Federal Social Security benefits.
Railroad Retirement Act benefits.
Gifts, inheritances, bequests.
Compensation by Hawaii or the U.S. to a patient affected with Hansen’s disease.
Child support.
Welfare benefits.
Compensation for services as a member of the uniformed services of the U.S.
Contributions to deferred compensation plans with respect to service for state and local governments or to an annuity purchased by qualified nonprofit organizations and public schools.
Royalties and other income derived from patents, copyrights, and trade secrets developed and arising out of a qualified high technology business.
All income earned and proceeds derived from stock options or stock, including stock issued through the exercise of stock options or warrants, from a qualified high technology business or from a holding company of a qualified high technology business by an employee, officer, or director of the qualified high technology business, or investor who qualifies for the high technology business investment tax credit.
Amounts paid after 1999 as restitution payments made to Holocaust victims (or their heirs or estate).
Amount of payment stipend waived by Department of Education coaches and dispensed to the school for the benefit of the coach’s team.
Scholarship grants received by a student under the Nursing Scholars Program.
All of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development, to the association of apartment owners or the residential cooperative corporation of the leasehold units.

Rounding Off to Whole Dollars

The Department of Taxation is requiring individual taxpayers to round off cents to the nearest whole dollar for all dollar entries on the tax return and schedules. To do so, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example: $1.39 becomes $1 and $2.69 becomes $3. If you have to add two or more amounts to figure the amount to enter on a line, schedule, or worksheet, you may choose to use one of two methods. Once a method of rounding is established, you must use the same method throughout the return. The first method is to include the cents when adding and round off only the total. The other method is to round off each entry. For example: You received two W-2 forms, one showing Hawaii withholding of $50.55 and one showing Hawaii withholding of $185.73. For rounding method 1, show your total Hawaii withholding as $236, ($50.55 + $185.73 = $236.28 rounded to $236). For rounding method 2, show your total Hawaii withholding as $237, ($50.55 rounded to $51.00 + $185.73 rounded to $186.00 = $51 + $186 = $237).

Line 7

Wages, Salaries, Tips, Etc.

Report as income any salaries, wages, or other compensation received by you, or available to you. You must report the full amount of your wages, salaries, fees, commissions, tips, bonuses, and other payments for your personal services even though taxes and other amounts have been withheld by your employer.

Note:You must report on line 7 all wages, etc., paid for your personal services, even if the income was signed over to a trust, (including an IRA), another person,
a corporation, or tax exempt organization.

Include in this total:

The amount shown on Form HW-2 in the box Wages, Tips, Other Compensation. If you received federal Form W-2, report the amount in box 16, State wages, tips, etc. If you did not receive a Form HW-2 or federal Form W-2, see page 6, Step 1 of instructions.
Tips received that you did not report to your employer. You must report as income the amount of allocated tips shown on your federal W-2 form(s) unless you can prove a lesser amount with adequate records.
Payment in merchandise, etc. - If your employer pays part or all of your wages in merchandise, services, stock or other things of value, you must determine the fair market value of such items and include it in your wages.
Fair market value of meals and living quarters if given by your employer as a matter of your choice and not for your employer’s convenience. (Don’t report the value of meals given you at work if they were provided for your employer’s convenience. Also do not report the value of living quarters you had to accept as a condition of employment).
Strike and lockout benefits paid by a union from union dues. Include cash and the fair market value of goods received. Don’t report benefits that were meant as a gift.
Amounts received as Cost of Living Allowance, Living Quarter Allowance, and Temporary Disability Insurance.
The taxable portion of employer-paid dependent care benefits from Schedule X, Part III, line 11. If you are including these benefits, write “DCB” on the dotted line next to line 7.
The taxable portion of employer-provided adoption benefits. Use the Adoption Benefits Worksheet on page 42 to help you figure the taxable portion. If you are including these benefits, write “AB” on the dotted line next to line 7.

Enter in Column A, the amount of salaries, wages, or other compensation earned from all sources that would be taxable if you were a full year Hawaii resident.

Nonresidents: Enter in Column B, the amount of salaries, wages, or other compensation earned for services rendered in Hawaii.

Part-year residents: Enter in Column B, the amount of salaries, wages, or other compensation earned from all sources for the period of residency; and the amount of salaries, wages, or other compensation earned for services rendered in Hawaii for the period of nonresidency.

Line 8

Interest Income

Report any interest you received or that was credited to your account so you could withdraw it. (It does not have to be entered in your passbook.) Each payer of interest should send you a federal Form 1099-INT or 1099-OID. If you were charged an interest penalty for early withdrawal of your savings, see the instructions for line 30 on page 19.

Examples of Interest Income You MUST Report

You must report interest on:

Accounts with banks, credit unions, and savings and loan associations.
Note:Do not report interest earned on Individual Retirement Accounts, Individual Housing Accounts, Individual Development Accounts, Qualified Tuition Programs, Medical Savings Accounts, and Health Savings Accounts.
Building and loan accounts.
Notes and loans.
Tax refunds (report only the interest on this line; also see the instructions for line 10).
Bonds and debentures.
Note: Municipal bonds that are issued by another State are taxable in Hawaii. However, interest on Hawaii State and County municipal bonds, and bonds issued by the Governments of Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa are exempt in Hawaii. Also, U.S. Savings Bonds and U.S. Treasury obligations are exempt in Hawaii. For more information about what kinds of obligations are exempt, see Tax Information Release No. 84-1, “Taxability of Interest on U.S. Obligations”.
Money market funds. But if the payer gives you a federal Form 1099-DIV, report the income as dividends on line 9.

Generally, the source of income from an intangible asset is the owner’s place of permanent residence or domicile. This means that a nonresident owning intangible assets and receiving income (interest income, dividend income) therefrom, even though the interest income may have been paid by a Hawaii bank or the dividend may have been paid by a Hawaii corporation, would not be subject to Hawaii income tax because the nonresident’s permanent residence or domicile is not Hawaii. However, such income would be subject to Hawaii income tax if the intangible asset acquired a situs in Hawaii, such as interest received on an agreement of sale of real property located in Hawaii, or dividends received by an S Corporation situated in Hawaii, which are passed through to the S Corporation’s nonresident shareholders.

Enter in Column A, the amount of interest income derived from all sources that would be taxable if you were a full year Hawaii resident.

Nonresidents: Enter in Column B, the amount of interest income derived from intangible assets that have acquired a situs in Hawaii. Use the Interest Worksheet on page 38 to help you figure the amount of your taxable interest to enter in Column B.

Part-year residents: Enter in Column B, the amount of interest income derived from all sources for the period of residency; and the amount of interest income derived from intangible assets that have acquired a situs in Hawaii for the period of nonresidency. Use the Interest Worksheet on page 38 to help you figure the amount of your taxable interest to enter in Column B.

Line 9

Ordinary Dividends

Note: Dividends from stock, including stock issued through the exercise of stock options or warrants, from a qualified high technology business or from a holding company of a qualified high technology business by an employee, officer, or director of the qualified high technology business, or investor who qualifies for the high technology business investment tax credit is excluded from Hawaii income taxes.

Enter your total ordinary dividends. Ordinary dividends are dividends that are paid out of earnings and profits and are ordinary income. Assume that any dividend you receive is an ordinary dividend unless the paying corporation tells you otherwise. Payers include nominees or other agents. Each payer should send you a Federal Form 1099-DIV. (If the payer gives you a federal Form 1099-INT or 1099-OID, report the income as interest on line 8.)

Do Not Report as Dividends

Mutual insurance company dividends that reduced the premiums you paid.
Amounts paid on deposits or accounts from which you could withdraw your money such as mutual savings banks, cooperative banks, and credit unions. These amounts are reported as interest on line 8.
Stock dividends or stock splits. Although these distributions generally are not taxable to you, they may be taxable in certain situations. See federal Publication 17, “Your Federal Income Tax”, for more information.
Capital gain distributions. If your Form 1099-DIV shows capital gain distributions (Box 2a), that amount is reported on line 13.
Nontaxable distributions. Some distributions are nontaxable because they are a return of your investment (Box 3 of Form 1099-DIV). They will not be taxed until you recover your cost. You must reduce your cost (or other basis) by the amount of nontaxable distributions received. After you get back all of your cost (or other basis), you must report these distributions as capital gains.

See the discussion for line 8 regarding the source of income from an intangible asset.

Enter in Column A, the amount of ordinary dividends derived from all sources that would be taxable if you were a full year Hawaii resident.

Nonresidents: Enter in Column B, the amount of ordinary dividends derived from intangible assets that have acquired a situs in Hawaii.

Part-year residents: Enter in Column B, the amount of ordinary dividends derived from all sources for the period of residency; and the amount of ordinary dividends derived from intangible assets that have acquired a situs in Hawaii for the period of nonresidency.

Line 10

Taxable Refunds of State and Local Income Taxes

Note: None of your refund is taxable if, in the year you paid the tax, you either (a) did not itemize deductions, or (b) elected to deduct state and local general sales taxes instead of state and local income taxes.

If you received a refund or credit in 2008 for state or local income taxes you paid before 2008, you may have to report it as income on your Hawaii income tax return. You should receive federal Form 1099-G, or similar statement, showing the refund.

Any part of a refund for state or local income taxes paid before 2008 that you were entitled to receive in 2008 but chose to apply to your 2008 estimated state income tax is considered to have been received in 2008.

If part of your refund was interest, report that amount on Form N-15, line 8. If you received a refund of 2007 taxes and you itemized deductions in 2007, figure the taxable portion of your refund using the State Tax Refund Worksheet on page 38. When completing the State Tax Refund Worksheet on page 38, enter an amount on line 2f only if the carryover of the residential construction and remodeling tax credit was claimed for construction or renovation costs for a residential unit that does not constitute business property. Enter the taxable portion on line 10, Columns A and B.

Note:If you are a part-year resident, and you received income tax refunds from other states, and you deducted the taxes paid to the other states as an itemized deduction on a prior year Hawaii return, include these amounts on line 1 of the State Tax Refund Worksheet on page 38.

If your refund included taxes from any previous year in which you itemized deductions, a similar calculation must be done for each previous year. If your 2007 Hawaii adjusted gross income was over $100,000 ($50,000 formarried taxpayers filing separately), you may be able to report a smaller amount of your tax refund as income because your itemized deductions were reduced in 2007. To compute the proper amount, see federal Publication 525, “Taxable and Nontaxable Income”, under Itemized deductions limited. In the computation, however, the Hawaii standard deduction amounts must be used, the amount of the refund due to the Hawaii credits listed in the State Tax Refund Worksheet is subtracted, and the base amount for the limitation of itemized deductions remains at $100,000 ($50,000 for married taxpayers filing separately). If you use this calculation, enter the result on Form N-15, line 10, Columns A and B.

If your 2007 state and local income tax refund is more than your 2007 state and local income tax deduction minus the amount you could have deducted as your 2007 state and local general sales taxes, see federal Publication 525, “Taxable and Nontaxable Income”, under Recoveries.

Line 11

Alimony Received

Alimony or separate maintenance payments that you received are taxable income to you. Report this income on line 11. However, if you received payments while you were a nonresident, a special rule may apply. See section 18-235-5-03(e), Hawaii Administrative Rules.

If you received payments under a divorce or separation instrument executed after 1984, see the instructions for line 31 for information on the rules that apply in determining whether these payments qualify as alimony. Enter in Column A, the amount of alimony received from all sources that would be taxable if you were a full year Hawaii resident.

Nonresidents: Enter in Column B, the amount of alimony received from a contributing spouse who is a resident, and where the payments are attributable to property owned in Hawaii that is transferred (in trust or otherwise) in discharge of a legal obligation to make alimony payments.

Part-year residents: Enter in Column B, the amount of alimony received from all sources for the period of residency; and the amount of alimony received as discussed above for nonresidents for the period of nonresidency.

Line 12

Business or Farm Income or (Loss)

If you operated a business or practiced a profession as a sole proprietorship (or an entity classified as a sole proprietorship), this line is used to report the net income or loss from the business. Farming income or losses are also reported on this line.

If your business consists of renting property, report it on line 17.

If you receive royalty income, report it on line 17.

Enter your net income or loss. Net income or loss can be calculated on federal Schedules C, C-EZ, or F.

For expenses that are part business and part personal, deduct only the business part. For example, if only half of your car usage was for business, deduct only half of the cost of operating the car. Deduct interest, taxes, and casualty losses not related to your business as itemized deductions. Seethe instructions for Form N-15, lines 38a to 38f.

Sales, exchanges, and involuntary conversions (including casualty or theft) of trade or business property may give rise to ordinary income or (loss), or capital gain or (loss). Report ordinary income or losses on line 14. Report capital gains or losses on line 13.

Note:If you conduct business in Hawaii and another state or country, you determine the Hawaii portion of that business income by using the “three factor formula”, which is generally based on the average percentage in Hawaii of your property, payroll, and sales.

Enter in Column A, the amount of business or farm income or (loss) from all sources that would be taxable if you were a full year Hawaii resident. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Nonresidents: Enter in Column B, the amount of business or farm income or (loss) with situs in Hawaii. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Part-year residents: Enter in Column B, the amount of business or farm income or (loss) from all sources for the period of residency; and the amount of business or farm income or (loss) with situs in Hawaii for the period of nonresidency. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Information Returns

You may have to file information returns for wages paid to employees, certain payments of fees and other non-employee compensation, interest, rents, royalties, annuities, and pensions. For more information, see the instructions for Form HW-3, Employer’s Return and Reconciliation of Hawaii Income Tax Withheld from Wages, and N-196, Hawaii Annual Information Return.

Line 13

Capital Gain or (Loss)

Note: Act 166, SLH 2007, provides that for taxable years beginning after December 31, 2007, and ending prior to January 1, 2013, all of the gain realized by a fee simple owner from the sale of a leased fee interest in units within a condominium project, cooperative project, or planned unit development, to the association of apartment owners or the residential cooperative corporation of the leasehold units is exempt from Hawaii income taxes.

Use lines 5 and 13 on the Capital Gains/LossWorksheet on page 38 to reduce the individual’s capital gain for these amounts reported on other lines of the Capital Gains/Loss Worksheet.

For purposes of this exemption, “fee simple owner” means the person who owns the fee simple title to the land which is leased, including a life tenant with a remainder over, vested or contingent, and a holder of a defeasible estate, and the holder’s heirs, successors, legal representatives, and assigns. A fee simple owner includes legal and equitable owners. “Leased fee interest” means all of the interests of the fee owner, lessor, and all legal and equitable owners of the land which is leased, other than the lessee’s interest as defined by chapter 516, HRS. “Legal and equitable owners” means the fee simple owner and all persons having legal or equitable interests in the fee or in the lessor’s leasehold estate, including mortgagees, developers, lienors, and sublessors, and their respective heirs, successors, legal representatives, and assigns. “Condominium project” means a real estate condominium project; a plan or project whereby a condominium of two or more units located within the condominium property regime have been sold or leased or are offered or proposed to be offered for sale or lease. “Cooperative project”means a real estate cooperative housing corporation project; a plan or project whereby two or more apartments located in a building owned by a cooperative housing corporation have been leased or are offered or proposed to be offered to be leased.

Note: Losses sustained from the sale of stocks or other interests issued through the exercise of the stock options or warrants granted by a qualified high technology business are deductible for Hawaii income tax purposes. Also, the sale of stock options or stock, including stock issued through the exercise of stock options or warrants, from a qualified high technology business or from a holding company of a qualified high technology business by an employee, officer, or director of the qualified high technology business, or investor who qualifies for the high technology business investment tax credit is excluded from Hawaii income taxes.

Note:The special federal election for capital assets acquired in tax years beginning before January 1, 2001 (election under section 311 of the Taxpayer Relief Act of 1997) is not available for Hawaii income tax purposes.

This line is used to report:

Gains or losses from the sale or involuntary conversion of capital assets not held for business or profit.
Capital gain distributions reported on federal Form 1099-DIV.

The capital gains or losses from the following transactions may also be reported on this line, however, complete Schedule D-1 to determine whether the gain or loss is ordinary or capital. Ordinary income or loss is reported on line 14.

The sale, exchange, or involuntary conversion (other than casualty or theft) of business property, certain depreciable and amortizable property, certain oil, gas and geothermal property, and IRC section 126 property.
The involuntary conversion (other than casualty or theft) of capital assets held for business or profit.
The disposition of other assets not mentioned above.

If property is involuntarily converted because of a casualty or theft, use federal Form 4684, Casualties and Thefts.

Enter in Column A, the amount of capital gains or losses derived from all sources that would be taxable if you were a full year resident. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Nonresidents: Enter in Column B, the amount of capital gains or losses on the disposition of capital assets with situs in Hawaii. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes. Use the CapitalGain/LossWorksheet on page 38 to figure the amount of your capital gains or losses to enter in Column B. Before starting the worksheet, determine your sales price and cost basis for the capital assets you sold, and the gain or loss you realized for each capital asset.

Part-year residents: Enter in Column B, the amount of capital gains or losses derived from all sources for the period of residency; and the amount of capital gains or losses on the disposition of capital assets with situs in Hawaii for the period of nonresidency. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes. Use the Capital Gain/Loss Worksheet on page 38 to figure the amount of your capital gains or losses to enter in Column B. Before starting the worksheet, determine your sales price and cost basis for the capital assets you sold, and the gain or loss you realized for each capital asset.

Capital Asset

Most property you own and use for personal purposes, pleasure, or investment is a capital asset. For example, your house, furniture, car, stocks, and bonds are capital assets.

A capital asset as defined by law is any property held by a taxpayer except:

Stock in trade or other property included in inventory or held for sale to customers.
Accounts or notes receivable you received for services in the ordinary course of your trade or business or from the sale of any property described in a. or for services you performed as an employee.
Depreciable property used in your trade or business even if it was fully depreciated.
Real property (real estate) used in your trade or business.
A copyright, literary, musical or artistic composition, letter, memorandum, or similar property,
- created by your personal efforts, or
- prepared or produced for you (in the case of a letter, memorandum, or similar property), or
- that you received from a taxpayer mentioned in 1 or 2, in a way (such as by gift) that entitled you to the basis of the previous owner.
U.S. Government publications (including the Congressional Record) that you received from the government other than by purchase at the normal sales price, or that you got from another taxpayer who had received it in a similar way if your basis is determined by reference to the previous owner.

A transfer of patent rights is generally considered a sale or exchange of a capital asset held for more than one year.

A nonbusiness bad debt must be treated as a short-term capital loss.

Short-Term or Long-Term

Separate your capital gains and losses according to how long you held or owned the property. The holding period for long-term capital gains and losses is more than one year. The holding period for short-term capital gains and losses is one year or less.

To figure the holding period, begin counting on the day after you received the property and include the day you disposed of it. Use the trade dates for date acquired and date sold for stocks and bonds on an exchange or over-the-counter market.

Capital Gain Distributions

If a dividend payor, such as a mutual fund company, reports a capital gain distribution to you on Form 1099-DIV, this amount is treated as a long-term capital gain regardless of how long you have held your shares. See federal Publication 550 for more details.

Limits on Capital Losses

The limit on capital losses that can be applied against other income after offsetting capital gains is $3,000. If you are married and filing separately, the limit is $1,500.

Unused capital losses are carried over to later years until fully used (15 years carryforward for qualified high technology businesses).

The amount of your capital loss carryover is the amount of your capital loss that exceeds the lesser of:

Your allowable capital loss deduction for the year, or
Your taxable income increased by your allowable capital loss deduction for the year and your deduction for personal exemptions.

If your deductions exceed your gross income for the tax year, use your negative taxable income in computing the amount in item (2).

Losses That Are Not Deductible

Do not deduct a loss from the sale or exchange of property directly or indirectly between any of the following:

Members of a family.
A corporation and an individual or a fiduciary owning more than 50 percent of the corporation’s stock (not counting liquidations).
A grantor and a fiduciary of a trust.
A fiduciary and a beneficiary of the same trust.
A fiduciary and a fiduciary or beneficiary of another trust created by the same grantor.
An individual and a tax-exempt organization controlled by the individual or the individual’s family.
A partnership and a corporation if the same taxpayers own directly or indirectly more than 50% of the capital interest, or profits interest, in the partnership
and corporation.

If you sell or otherwise dispose of (1) an asset used in an activity to which the “at-risk” rules apply or (2) any part of your interest in an activity to which the “at-risk” rules apply (see IRC section 465), combine the gain or loss on the disposition with the profit or loss from the activity. If you have a net loss, you may be subject to the “at-risk” provisions.

Special Cases

The following items may require special treatment:

Transactions by a securities dealer.
Wash sales of stock or securities.
Bonds and other evidence of indebtedness if an original issue discount is a factor.
Gain on the sale of qualified reinvested dividends from a qualified public utility.
Certain real estate subdivided for sale which may be considered a capital asset.
Distributions received from an employee pension, profit-sharing, or stock bonus plan (see Form N-152, Tax on Lump-Sum Distributions).
Gain on the sale of depreciable property between husband and wife or between shareholder and a controlled corporation treated as ordinary gain.
Gain on disposition of stock in a Domestic International Sales Corporation.
Gain or loss on options to buy or sell, including closing transactions.
Transfer of property to a foreign corporation as paid-in surplus or as a contribution to capital, or to a foreign trust or partnership.
Transfer of property to a partnership which would be treated as an investment company if the partnership was incorporated.

Transfer of Appreciated Property to a Political Organization

If you transfer property to a political organization when the fair market value of the property is more than your adjusted basis, treat the transaction as a property sale on the transfer date. Report the fair market value of the property at the time of the transfer as the sales price. Ordinary income or capital gains provisions apply as if a sale took place.

Exchange of Like-Kind Property

Report the exchange of “like-kind” property on federal Form 8824, Like-Kind Exchanges, and attach the form to your return. You must report it even though no gain or loss is recognized when you exchange business or investment property for property of “like-kind.” (This does not include stock in trade or other property held primarily for sale. It also does not include stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest.)

Small Business Stock

Subject to limitations, you may deduct the loss on the sale, exchange, or worthlessness of small business stock (IRC section 1244) as an ordinary loss on line 14. However, gains are reported as capital gains on this line.

Disposition of Business Property

A sale or other disposition of property used in a trade or business, or of an interest in a partnership, may result in either ordinary income or loss, or capital gain or loss. Schedule D-1 should be used to determine whether the gain or loss is ordinary or capital. Ordinary income or loss is reported on line 14.

Also, if the capital goods excise tax credit has been taken on the property, some of the credit may be recaptured. See Form N-312 for further information.

Sale of Your Home

Use Form N-103 to determine the gain or loss from the sale of your main home.

Report a taxable gain from the sale of your main home as a gain from the sale of a capital asset. A loss from such a sale is not deductible.

You can exclude up to $250,000 ($500,000 for certain married persons filing a joint return) of gain from the sale of your main home if both 1 and 2 below apply:

You owned and used the home as your main home for 2 years or more during the 5-year period ending on the date you sold or exchanged your home.
You have not sold or exchanged another main home during the 2-year period ending on the date of the sale or exchange of your home.

Note: An exception is provided for the two-out-of-five year rule for certain uniformed and foreign service personnel and employees of the intelligence community with respect to the $250,000 gain exclusion for home sales.

Note: You cannot exclude from income a gain from selling your main home after October 22, 2004, if you acquired the home in a like-kind exchange and sold it during the 5-year period beginning with the date you acquired the home.

Note: Act 93, SLH 2008, adopts the federal provision that for sales after 2007, the maximum exclusion on the sale of a main home by an unmarried surviving spouse is $500,000 if the sale occurs no later than 2 years after the date of the other spouse's death.

See the instructions for Form N-103 for further information.

Installment Sales

If you sold property at a gain, and are to receive any payment in a tax year after the year of sale, you must use the installment method and federal Form 6252, Computation of Installment Sale Income, unless you elect not to. Also use federal Form 6252 if you received a payment in 2008 from a sale made in an earlier year on the installment method.

You may not use the installment method to report income from the sale of stock or securities traded on an established securities exchange. All payments to be received under this type of sale are treated as received in the year of sale.

If you want to elect out of the installment method, you must attach a statement to your return making this election and reporting the full amount of the sale.

Gains and Losses from Section 1256 Contracts and Straddles

For information on how to report gains and losses from regulated futures contracts and straddles, see federal Form 6781.

Undistributed Long-term Capital Gains from Regulated Investment Companies

Include in income as a long-term capital gain the amount which constitutes your share of the undistributed capital gains of a regulated investment company. If a regulated investment company informs you that it has undistributed gains and has told you that it has paid tax to the State of Hawaii because of those gains, you may be entitled to a credit that should be claimed on Schedule CR, line 20b.

Line 14

Supplemental Gains or (Losses)

In general, this line is used to report:

The sale, exchange, or involuntary conversion (other than casualty or theft) of business property, certain depreciable and amortizable property, certain oil, gas and geothermal property, and IRC section 126 property.
The involuntary conversion (other than casualty or theft) of capital assets held for business or profit.
The disposition of noncapital assets other than inventory or property held primarily for sale to customers in the ordinary course of your business. Enter in Column A, the amount of ordinary gains or losses derived from all sources that would be taxable if you were a full year resident. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Nonresidents: Enter in Column B, the amount of ordinary gains or losses on the disposition of assets with situs in Hawaii. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Part-year residents: Enter in Column B, the amount of ordinary gains or losses derived from all sources for the period of residency; and the amount of ordinary gains or losses on the disposition of assets with situs in Hawaii for the period of nonresidency. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Line 15

IRA Distributions

IRA and Coverdell Education Savings Account (ESA) distributions are not taxable to nonresidents, however, if a nonresident later becomes a resident of Hawaii, the amount of IRA and Coverdell ESA distributions received after acquiring the Hawaii residency status may be taxable.

An IRA includes a traditional IRA, Roth IRA, simplified employee pension (SEP) IRA, and a savings incentive match plan for employees (SIMPLE) IRA.

For more information, see federal Publication 590, Individual Retirement Arrangements (IRAs) and federal Publication 970, Tax Benefits for Education.

Enter in Column A, the amount of IRA and Coverdell ESA distributions that would be taxable if you were a full year resident.

Nonresidents: Enter zero in Column B.

Part-year residents: Enter in Column B, the amount of IRA distributions that would be taxable for the period of residency.

Line 16

Pensions and Annuities

Note: Public Law 104-95, prohibits any state from imposing an income tax on the retirement income of any individual who is not a resident or domiciliary of that state.

Use line 16 to report annuity income that is fully or partially taxable. Also use this line to report distributions from profit-sharing plans and employee- savings plans.

Enter in Column A, the amount that would be taxable if you were a full year resident.

Nonresidents: Enter zero in Column B.

Part-year residents: Enter in Column B, the amount that would be taxable for the period of residency.

Nontaxable Distributions

Employer-Funded Pension Plans -The following three types of distributions are not taxed by Hawaii and do not need to be reported on line 16:

Pension or annuity distributions from a public (i.e. government) retirement system (e.g. federal civil service annuity, military pension, state or county retirement system).
Distributions from a private employer pension plan received upon retirement (including early retirement and disability retirement) if the employee did not contribute to the pension plan.
Distributions from a pension plan at age 70-1/2 that are made to comply with the federal mandatory payout rule do qualify as a retirement payment whether or not the employee is still working full time.

Distributions from a private employer pension plan received upon retirement are partially taxed by Hawaii if the employee contributed to the pension plan.

Rollover IRAs- A rollover IRA is treated as a continuation of the original plan that provided the money that is rolled over. If distributions from the original plan would be characterized as a qualified distribution, distributions out of the rollover IRA need not be reported as well.

Example -In 1997, an individual received a lump sum distribution from an employer-funded profit-sharing plan upon retirement. The individual did not contribute to the profit-sharing plan. The entire lump sum distribution was rolled over to an IRA. In 2008, the individual rolled over $50,000 from the IRA to a Roth IRA. The entire amount rolled over to the Roth IRA represents the lump sum distribution received by the individual upon retirement and earnings thereon. Since the lump sum distribution that the individual received upon retirement qualifies as a pension, the amount rolled over from the regular IRA to the Roth IRA also qualifies as a pension. Therefore, the amount rolled over to the Roth IRA is exempt from Hawaii's income tax.

Taxable Pensions and Annuities

Early Distributions- Early distributions from a pension plan that are subject to the 10 percent federal penalty tax do not qualify and are taxable. If you are receiving an early distribution, include the gross amount in line 16, Column A.

Deferred Compensation Plans- Distributions from a deferred compensation plan may be fully or partly taxable. A deferred compensation plan includes any plan in which the employee has a choice of whether to contribute money into the plan or take that amount in cash or property. Examples include 401(k) plans, salary reduction Simplified Employee Pension (SARSEP) plans, the Federal Thrift Savings Plan, and section 457 plans like the State of Hawaii Deferred Compensation Plan. Attach Schedule J (Form N-11/N-15/N-40) to figure the taxable amount to include in line 16, Column A.

Annuity Plans- Retirement vehicles that you fund yourself, such as annuity plans and Individual Retirement Accounts (IRAs) that are not funded through a Simplified Employee Pension (SEP) plan, are considered to be your own investments. Distributions from these plans may be fully or partly taxable, depending on whether your IRAs include deductible or nondeductible contributions. Attach Schedule J (Form N-11/N-15/N-40) to figure the taxable amount to include in line 16, Column A.

Rollover IRAs- A rollover IRA is treated as a continuation of the original plan that provided the money that is rolled over. If distributions from the original plan would be characterized as taxable, distributions out of the rollover IRA would be taxable as well. Attach Schedule J (Form N-11/N-15/N-40) to figure the taxable amount to include in line 16, Column A.

Example -In 1997, an individual received a lump sum distribution from an employer-funded profit-sharing plan upon separation from service before retirement. The individual did not contribute to the profit-sharing plan. The entire lump sum distribution was rolled over to an IRA. In 2008, the individual rolled over $50,000 from the IRA to a Roth IRA. The entire amount rolled over to the Roth IRA represents the lump sum distribution received by the individual upon separation from service and earnings thereon. Since the lump sum distribution that the individual received upon separation from service does not qualify as a pension (the distribution is not paid upon retirement, disability, or death), the amount rolled over from the regular IRA to the Roth IRA also does not qualify as a pension. Therefore, the amount rolled over to the Roth IRA is taxable for Hawaii's income tax.

Hybrid Plans- If you received a distribution from a plan that is partly pension and partly deferred compensation, such as a 401(k) plan with a profit sharing component or an employer matching program, a SEP plan with employer contributions as well as a salary reduction option, or a similar hybrid plan, attach Schedule J (Form N-11/N-15/N-40) to figure the taxable amount to include in line 16, Column A.

Lump-Sum Distributions- If you received a lump-sum distribution from a pension plan and you are electing to use the special ten-year averaging method, attach Schedule J (Form N-11/N-15/N-40) and Form N-152, Tax on Lump Sum Distributions, to figure the taxable amount.

Note: If your lump-sum distribution included capital gain amounts, you may be able to reduce your tax by including the capital gain amounts on Form N-152 and electing the capital gains treatment. See Form N-152 Instructions for more information.

Caution: Certain transactions, such as loans against your interest in a qualified plan, may be treated as taxable distributions.

For more information on the taxation of pensions, see sections 18-235-7-01 to 18-235-7-03, Hawaii Administrative Rules, Tax Information Release No. 90-4, "Taxability of Benefit Payments from Pension Plan to Participants who Attain Age 70-1/2 as Required by the Internal Revenue Code Section 401(a)(9)(C)", and Tax Information Release No. 96-5, "Taxation of Pensions Under the Hawaii Net Income Tax Law: Deferred Compensation Arrangements; Rollover IRAs; Sub-Accounts of Pension Plans; Social Security and Railroad Retirement Act Benefits; Limitation on Deductions for Contributions to a Nonqualified Plan".

Line 17

Rents, Royalties, Partnerships, Estates or Trusts

Enter your net income or loss from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs. Net income or loss can be calculated on federal Schedule E.

Enter in Column A, the net income or loss from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs from all sources that would be taxable if you were a full year resident. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Nonresidents: Enter in Column B, the net income or loss from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs with situs in Hawaii. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Part-year residents: Enter in Column B, the net income or loss from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs from all sources for the period of residency; and the net income or loss from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs with situs in Hawaii for the period of nonresidency. If the amount is a loss, shade the minus (-) in the box to the left of the amount boxes.

Note: The paying entity may send you a Hawaii Schedule K-1 that will tell you how much income was Hawaii source income; if it does not, you still need to find this information out from the paying entity. For part-year residents, if you are unable to determine how much was earned during the period of residency, prorate it over the year. For example, if a part-year resident was a resident for 4 months and was told by a partnership that the resident's share of income was $45,000, out of which $15,000 was Hawaii source income, then the taxable portion would be $15,000 Hawaii source income plus one-third (4 months / 12 months) of the non-Hawaii source income of $30,000 ($45,000 -$15,000), for a total of $25,000 ($15,000 + 1/3 of $30,000).

Line 18

Unemployment Compensation

Unemployment compensation (insurance) you received is taxable. You should receive federal Form 1099-G, or similar statement, showing the total unemployment compensation paid to you during the year. For payments in 2008 you should receive this statement by January 31, 2009. Note: Supplemental unemployment benefits received from a company-financed supplemental unemployment benefit fund are wages. They are not considered unemployment compensation. Report these benefits on Form N-15, line 7.

Enter in Column A, the amount of unemployment compensation received from all sources. Nonresidents: Enter in Column B, the amount of unemployment compensation received from Hawaii.

Part-year residents: Enter in Column B, the amount of unemployment compensation received from all sources for the period of residency; and the amount of unemployment compensation received from Hawaii for the period of nonresidency.

Line 19

Other Income

Use line 19 to report any income you can't find a place for on your return or other schedules. Also show the nature and source of the income. Caution: Do not report any income from self-employment on line 19. If you do have any income from self-employment, you must report it on line 12.

Examples of income to be reported on line 19 are:

Prizes, awards and gambling winnings. Proceeds from lotteries, raffles, etc., are gambling winnings. You must report the full amount of your winnings on this line. You cannot offset losses against winnings and report the difference. If you had any gambling losses, you may take them as a miscellaneous itemized deduction not subject to the 2% AGI limitation on line 38f. However, you cannot deduct more losses than the winnings you report.
Repayment of items that you deducted in an earlier year, such as medical expenses or real estate taxes, if the deduction reduced your tax.
Amounts you recovered on bad debts that you deducted in an earlier year.
Fees received for jury duty and precinct election board duty. These fees are taxable, but you may be able to deduct part or all of your jury duty pay if you were required to turn it over to your employer. See the instructions for line 35 on page 20.
Individual Housing Account (IHA) distributions. If you purchased a principal residence with an Individual Housing Account (IHA), or you are notified by an IHA trustee that you have received a taxable distribution, report the taxable amount on line 19.

If you purchased residential property before January 1, 1990, with a distribution from an IHA, you must include in gross income in the year the property is sold, conveyed, or transferred an amount equal to the amount of the distribution, unless an election was made to include one-tenth of the distribution in gross income each year for ten years. In addition, a penalty is added to your gross income. Attach Form N-103, Sale of Your Home, to figure the additional gross income.

If you purchased residential property after December 31, 1989, you must include in gross income one-tenth of the distribution each year for ten years. If you sell the property purchased with an IHA distribution before the end of the ten-year period, the remaining amount of the distribution not previously reported must be included in gross income in the year of sale. In addition, a penalty is added to your tax liability. Attach Form N-103, Sale of Your Home, to figure the additional tax liability.

If you purchased residential property after December 31, 1996, with a distribution from an IHA established prior to January 1, 1990, and you have made the election to do so, you must include in gross income in the year the property is sold, conveyed, or transferred an amount equal to the amount of the distribution. In addition, a penalty is added to your gross income. Attach Form N-103, Sale of Your Home, to figure the additional gross income.

If you use an IHA distribution for any purpose other than to purchase a first principal residence in Hawaii, or if you borrow against the IHA for such a purpose, the distribution (or the loan amount) is taxable, and a 10% penalty tax is imposed. The additional tax is the same amount shown in Box 4 of Form N-2, Distribution from an Individual Housing Account, and must be included on line 44.

If you establish an IHA and later marry a person owning residential property, the IHA will terminate and distribute all of the assets to you. In this case, you must include the total distribution in your gross income. No penalty tax is imposed, but the 10% is still withheld. Be sure to claim the withheld amount on line 47.

If an individual establishes an IHA and then dies or becomes totally disabled, special rules apply. For more information, see sections 18-235-5.5(r) and (s), Hawaii Administrative Rules.

Scholarships and Fellowships. If you received a scholarship or fellowship that was granted after August 16, 1986, part or all of it may be taxable even if you didn't receive a federal W-2 form. If you were a degree candidate, the amounts you used for expenses other than tuition and course-related expenses are taxable. For example, amounts used for room, board, and travel are taxable. If you were not a degree candidate, the full amount of the scholarship or fellowship is taxable. Include the taxable amount on line 19.
Taxable medical savings account distributions. Distributions from medical savings accounts which were used for purposes other than medical expenses are taxable.
Qualified state tuition program distributions not used to pay for qualified higher education expenses. Hawaii has adopted the federal provisions relating to the qualified tuition programs (also known as a 529 program) except for the 10% tax on distributions not used for educational expenses. A qualified tuition program (QTP) is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified higher education expenses at an eligible educational institution. A program can be established and maintained by a state, an agency or instrumentality of a state, or an eligible educational institution. You cannot deduct either payments or contributions to a QTP.

The part of a distribution representing the amount paid or contributed to a QTP is not included in income. This is a return of the investment in the program.

The beneficiary generally does not include in income any earnings distributed from a QTP established and maintained by a state, an agency or instrumentality of a state, or an eligible educational institution if the total distribution is less than or equal to adjusted qualified higher education expenses. However, the beneficiary must include in income any earnings distributed before January 1, 2004, from a QTP established and maintained by an eligible educational institution.

For more information, see federal Publication 970, Tax Benefits for Education.

Taxable health savings account distributions. Distributions from health savings accounts which were used for purposes other than medical expenses are taxable.
Net operating loss.-

Note: Hawaii did not adopt the 5-year net operating loss carryback provision of the Job Creation and Worker Assistance Act (Public Law No. 107-147).

If, in 2008, your business or profession lost money, or you had a casualty loss, or a loss from the sale or other disposition of depreciable property or real property used in your trade or business, you can apply the losses against your 2008 income. If the losses exceed your income, the excess is a "net operating loss".

In general, net operating losses arising in taxable years beginning after August 5, 1997, may be used to reduce your income for the 2 years before 2008 and the 20 years after, or you may elect to use it to reduce your income for the 20 following years without carrying the loss to the 2 prior years. The portion of a net operating loss for a tax year that's an "eligible loss" may be carried back to the 3 preceding tax years. In the case of an individual, eligible losses are property losses arising from fire, storm, shipwreck, or other casualty, or from theft. In the case of a taxpayer that's a small business (a sole proprietorship whose average annual gross receipts are $5 million or less for the tax year in which the loss arose), or engaged in the trade or business of farming, eligible losses are net operating losses attributable to Presidentially declared disasters.

If you carryback the loss and are due a refund from the carryback, you must file an amended return on Form N-15. Nonresidents and part-year residents cannot file Form N-109, Application for Tentative Refund from Carryback of Net Operating Loss. A separate amended Form N-15 must be completed for each year you request an adjustment. Attach a computation of your net operating loss; and copies of your original 2008 federal Form 1040, and federal Schedules A, B, and D to the amended Form N-15. If these items are not attached, the processing of your amended Form N-15 may be delayed. For more information on filing an amended return on Form N-15, see page 33.

If you elect to carry the loss forward instead, you must attach a statement to this effect on a timely filed return (including extensions). If you make such an election, it cannot be changed later.

If you had a loss in a prior year to carry forward to 2008; enter it on line 19 and shade the minus (-) in the box to the left of the amount boxes. Attach a separate sheet showing how you figured the amount.

Note: Although nonresidents and part-year residents cannot file Form N-109, Schedule A (Form N-109) may be used to figure the amount of the net operating loss that is available for carryback or carryforward.

Line 20

Total Income

Add the amounts in Column A and B for lines 7 through 19. If any of these amounts are negative, first add all the positive amounts. Next, add all the negative amounts. Then, subtract the total of the negative amounts from the total of the positive amounts and enter the result on line 20. If the result is negative, shade the minus (-) in the box to the left of the amount boxes.

Adjustments to Income

Line 21

Archer MSA Deduction

Enter in Column A, the same amount allowed on your federal return as an Archer MSA deduction. Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total earned income subject to taxation in Hawaii by the total earned income computed without regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return. For more information, see the instructions to federal Form 1040.

Line 22

Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials

If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can include your expenses for reserve travel over 100 miles from home, up to the federal rate, from line 10 of federal Form 2106 or line 6 of federal Form 2106-EZ on line 22.

If you are a qualified performing artist, you can include your performing- arts-related-expenses from line 10 of federal Form 2106 or line 6 of federal Form 2106-EZ on line 22.

If you are a fee-basis state or local government official, include your employee business expenses from line 10 of federal Form 2106 or line 6 of federal Form 2106-EZ on line 22.

Enter in Column A, the same amount allowed on your federal return as a deduction for certain business expenses of reservists, performing artists, and fee-basis government officials.

Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total reservists, performing artists, and fee-basis government officials income subject to taxation in Hawaii by the total reservists, per forming artists, and fee-basis government officials income computed with out regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return.

For more information, see the instructions for federal Form 1040 and federal Form 2106. Complete and attach federal Form 2106 or federal Form 2106-EZ to your return.

Line 23

Individual Retirement Arrangements (IRAs)

Enter the combined amount of your IRA deduction and your spouse's IRA deduction.

Note: You cannot deduct contributions to a Roth IRA or a Coverdell ESA.

Enter in Column A, the same amount allowed on your federal return as an IRA deduction. Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total earned income subject to taxation in Hawaii by the total earned income computed without regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return.

For more information, see the instructions for federal Form 1040.

Line 24

Student Loan Interest Deduction

You may take this deduction only if ALL four of the following apply.

You paid interest in 2008 on a qualified student loan (see below).
Your filing status is any status except married filing separately.
Your Hawaii modified adjusted gross income (AGI) is less than: $65,000 if single, head of household, or qualifying widow(er); $130,000 if married filing jointly.
You are not claimed as a dependent on someone's (such as your parent's) 2008 tax return.

If you paid interest on a qualified education loan (see below), you may be able to deduct up to $2,500 of the interest on this line.

Qualified student loan. This is any loan you took out to pay the qualified higher education expenses for yourself, your spouse, or anyone who was your dependent when the loan was taken out. The person for whom the expenses were paid must have been an eligible student. However, a loan is not a qualified student loan if (a) any of the proceeds were used for other purposes or (b) the loan was from either a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan. To find out who is a related person, see federal Publication 970.

Qualified higher education expenses generally include tuition, fees, room and board, and related expenses such as books and supplies. The expenses must be for education in a degree, certificate, or similar program at an eligible educational institution. An eligible educational institution includes most colleges, universities, and certain vocational schools. You must reduce the expenses by the following benefits:

Employer-provided educational assistance benefits that are not included in box 1 of your federal W-2 form(s).
Excludable U.S. Series EE and I savings bond interest from federal Form 8815.
Nontaxable qualified state tuition program earnings.
Nontaxable earnings from Coverdell ESA.
Any scholarship, educational assistance allowance, or other payment (but not gifts, inheritances, etc.) excluded from income. For more details on these expenses, see federal Publication 970. An eligible student is a person who:
Was enrolled in a degree, certificate, or other program (including a program of study abroad that was approved for credit by the institution at which the student was enrolled) leading to a recognized educational credential at an eligible educational institution, and
Carried at least half the normal full-time workload for the course of study he or she was pursuing.

How To Figure the Deduction. Use the Student Loan Interest Deduction Worksheet on page 42 to figure your deduction.

Line 25

Health Savings Account Deduction

Enter in Column A, the same amount allowed on your federal return as a health savings account deduction. Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total earned income subject to taxation in Hawaii by the total earned income computed without regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return.

For more information, see the instructions to federal Form 1040.

Line 26

Moving Expenses

Employees and self-employed persons (including partners) can deduct certain moving expenses.

You can take this deduction if you moved in connection with your job or business and your new workplace is at least 50 miles farther from your old home than your old home was from your old workplace. If you had no former workplace, your new workplace must be at least 50 miles from your old home.

A nonresident may only deduct expenses connected with a move to or within the State of Hawaii. Hawaii allows a moving expense deduction for animal quarantine costs (up to 120 days) incurred.

A nonresident or a part-year resident giving up their Hawaii residency may not deduct moving expenses to a new place of employment outside the State of Hawaii. In this situation, zero should be entered on line 26, Column B.

For more details, see Form N-139. Complete and attach the form to your return.

Line 27

One-half of Self-Employment Tax

If you are self-employed, you will be able to deduct as a business expense 50% of the amount of self-employment taxes paid for the tax year.

Enter in Column A, the same amount allowed on your federal return as a deduction for self-employment tax.

Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total self-employment income subject to taxation in Hawaii by the total self-employment income computed without regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return.

For more information see the instructions for federal Form 1040.

Line 28

Self-Employed Health Insurance Deduction

If you are self-employed, you will be able to deduct as a business expense 100% of the amount you pay for medical insurance covering yourself, your spouse, and your dependents provided that your net earned income from your Hawaii business is at least equal to the deduction.

However, if in addition to running your own business, you are an employee of another person, you will not be able to deduct the medical insurance costs you pay if you are eligible to participate in a plan maintained by your employer. This is also true even if it is your spouse who is employed and you are eligible to participate in your spouse's company plan.

For the period of nonresidency, the following limitations may also apply to your health insurance deduction:

Only the amount paid for medical insurance coverage for the period you were self-employed within Hawaii is eligible for the deduction.
The net earned income from your Hawaii business must be at least equal to the deduction.

For more information, see the instructions for federal Form 1040.

Line 29

Self-Employed SEP, SIMPLE, and Qualified Plans

Caution: You must have earnings from self-employment to claim this deduction. Sole proprietors and partners enter the allowable deduction for contributions to your SEP, SIMPLE, and qualified plans (H.R. 10 plans or Keogh plans) on line 29.

There are two types of Keogh (H.R. 10) retirement plans:

Defined-contribution plan. - This plan provides an individual account for each person in the plan. In general, if contributions to the plan are geared to the employer's profits, the plan is a profit-sharing plan. If contributions are not based on the employer's profits, the plan is a money purchase pension plan.
Defined-benefit plan. - The deduction for this type of plan is determined by the investment needed to fund a specific benefit at retirement age. Write "DB" on the line to the left of the amount if you have a defined-benefit plan. Page 18

Enter in Column A, the same amount allowed on your federal return as a SEP, SIMPLE, and qualified plan deduction.

Nonresidents and part-year residents: Compute your allowable deduction for Column B as follows:

Divide your total self-employment income subject to taxation in Hawaii by the total self-employment income computed without regard to source.
Multiply the resulting percentage by the deduction allowed on your federal return.

For more information, see the instructions for federal Form 1040.

Line 30

Interest Penalty on Early Withdrawal of Savings

The federal Form 1099-INT given to you by your bank or savings and loan association will show the amount of any interest penalty you were charged because you withdrew funds from your time savings deposit before its maturity. Enter this amount on line 30, Column A. (Be sure to include the interest income on Form N-15, line 8, Column A.)

The penalty cannot be deducted on your Hawaii return if none of the interest from the account was taxable as Hawaii income. If part of the interest was from an account that was taxable as Hawaii income, compute your allowable deduction as follows:

Divide the amount of interest received on that account subject to taxation in Hawaii by the total interest received on that account.
Multiply the resulting percentage by the total penalty charged to that account.

Enter this amount on line 30, Column B. (Be sure to include the taxable interest income on Form N-15, line 8, Column B.)

Line 31

Alimony Paid

You can deduct (subject to Department of Taxation Rules) periodic payments of alimony or separate maintenance made under a court decree. You can also deduct payments made under a written separation agreement or a decree for support. Don't deduct lump-sum cash or property settlements, voluntary payments not made under a court or a written separation agreement, or amounts specified as child support.

If you paid alimony to one person, enter the name and social security number of the recipient in the space to the left of line 31.

If you paid alimony to more than one person, enter the social security number of one of the recipients. Show the social security number(s) and the amount paid to the other recipient(s) on an attached statement. Enter your total payments on line 31.

Generally, you may deduct any payment made in cash to, or on behalf of, your spouse or former spouse under a divorce or separation instrument executed after 1984 if ALL 5 of the following apply:

The instrument does not prevent the payment from qualifying as alimony.
You and your spouse or former spouse did not live together when the payment was made if you were separated under a decree of divorce or separate maintenance.
You are not required to make any payment after the death of your spouse or your former spouse.
The payment is not treated as child support.
For instruments executed in 1985 or 1986, the minimum term rule is met.

If your alimony payments decrease or terminate during the first 3 calendar years, you may be subject to the recapture rule.

Deduction from gross income for alimony and separate maintenance payments shall be allowed only to the extent of the ratio of gross income attributed to this State to the entire gross income computed without regard to source in this State; provided that as used in this sentence "gross income" means gross income as defined in the Internal Revenue Code, minus the deductions defined in section 62 of the Internal Revenue Code, other than the deductions for alimony and separate maintenance payments.

Example	Total Income	Hawaii Income
Income after allowable deductions (Form N-15, page 3, line 36)* Computation for allowable alimony deduction: $ 60,000 / $100,000 = 60% x $10,000 = $6,000	$100,000	$60,000
Alimony paid (Form N-15, page 2, line 31	$10,000	$6,000
*Excluding amount paid for alimony.

For more information see federal Publication 504, Tax Information for Divorced or Separated Individuals.

Line 32

Payments to an Individual Housing Account

You may be able to deduct from your gross income up to $5,000, paid in cash during the taxable year into a trust account which is established for savings for a down payment on your first principal residence in Hawaii. A deduction not to exceed $10,000 shall be allowed for a married couple filing a joint return. No deduction shall be allowed on any amounts distributed less than 365 days from the date on which a contribution is made to the account. Any deduction claimed for a previous taxable year for amounts distributed less than 365 days from the date on which a contribution was made shall be disallowed and the amount deducted shall be included in the previous taxable year's gross income and the tax reassessed. The account, established along the same lines as an individual retirement account (IRA), is to encourage first-time home buyers to save money for a down payment on a home. The interest income earned on the account within the taxable year shall not be included in gross income.

The "first principal residence" means a residential property purchased with the payment or distribution from the individual housing account which shall be owned and occupied as the only home by an individual who did not have any previous interest in, individually, or if the individual is married, whose spouse did not have any interest in a residential property inside or outside the State of Hawaii within the last 5 years prior to opening the IHA.

The amounts paid in cash allowable as a deduction for all taxable years are limited to $25,000, in the aggregate, excluding interest earned or accrued. This limitation also applies to married individuals having separate accounts, the sum of such separate accounts and the deduction shall not exceed $25,000 in the aggregate, excluding interest income earned or accrued.

Other requirements:

The trustee must be a qualified bank, savings and loan association, credit union, or depository financial services loan company. Check with your financial institution if it is a qualified institution under Hawaii IHA rules.
The entire interest of the trust account shall be distributed to the taxpayer( s) not later than 120 months after the date on which the first contribution is made to the trust. Enter the amount of your payments to an IHA in Columns A and B.

For more information, see section 18-235-5.5, Hawaii Administrative Rules.

Line 33

Military Reserve or Hawaii National Guard Duty Pay Exclusion

The first $4,484 received by each member of the reserve components of the army, navy, air force, marine corps, coast guard of the United States of America, and the Hawaii national guard, as compensation for performance of duty as such is not taxable for Hawaii net income tax purposes but limited to that income that would have been subject to taxation in Hawaii.

If you qualify, enter in Columns A and B the smaller of:

$4,484, or
Your pay, as shown on Box 16 of the Form W-2 sent to you by your reserve component.

If you are married filing a joint return, and you and your spouse qualify, add the exclusions for both of you and enter the total on line 33, Columns A and B.

Line 34

Exceptional Trees Deduction

You may deduct up to $3,000 per exceptional tree for qualified expenditures you made during the taxable year to maintain the tree on your private property. The tree must be designated as an exceptional tree by the local county arborist advisory committee under chapter 58, HRS. Qualified expenditures are those expenses you incurred to maintain the exceptional tree (excluding interest) that are deemed "reasonably necessary" by a certified arborist. No deduction is allowed in more than one taxable year out of every three consecutive taxable years. The deduction is allowed for amounts paid in taxable years beginning after December 31, 2003.

An affidavit signed by a certified arborist stating that the amount of expenditures are deemed reasonably necessary must be attached to your tax return. The affidavit also must include the following information: (1) type of tree, (2) location of tree, and (3) description and amount of expenditures made in 2008 to maintain the tree. The affidavit must be notarized.

Enter the amount of qualified expenditures you made during 2008 in Columns A and B.

Line 35

Total Adjustments

Add lines 21 through 34. Enter the total on this line. Include in the total on line 35:

Contributions by an individual development account (IDA) holder to their IDA. Include the contributions made during 2008 and write in the total on Form N-15, line 35 "IDA Contribution" in the space to the left of the total.
Jury duty pay you are required to give to your employer because your employer continues to pay your salary while you serve on the jury. Include the amount you repaid during 2008 and write in the total on Form N-15, line 35 "Jury Pay" in the space to the left of the total.
Attorney fees and court costs paid after October 22, 2004, for actions settled or decided after that date involving certain unlawful discrimination claims, but only to the extent of gross income from such actions. Include the attorney fees and court costs paid during 2008 in the total on line 35 and write "UDC" in the space to the left of the total. For more information, see federal Publication 525.
Attorneys' fees and costs relating to whistleblower rewards paid for providing information regarding violations of the tax laws on or after December 20, 2006. Include the attorney fees and costs paid during 2008 in the total on line 35 and write "WBF" in the space to the left of the total.

Line 36

Adjusted Gross Income

Line 20 minus line 35. If line 36 is less than zero (0), you may have a net operating loss that you can carry to another tax year. If you carry the loss back to earlier years, see Form N-109.

If line 36 is a negative number, shade the minus (-) in the box to the left of the amount boxes.

Deductions and Taxable Income Computation

Line 37

Ratio of Hawaii AGI to Total AGI

Divide line 36, Column B, by line 36, Column A. Compute the ratio to 3 decimal places and round it to 2 decimal places. For example, line 36, Column A is $90,000; and line 36, Column B is $60,000. The ratio of Hawaii AGI to total AGI is 0.67 (60,000/90,000 = 0.666 rounded to 0.67).

Note: If line 36, Column A is zero or a negative number (loss) and line 36, Column B is a positive number, enter 1.00 on line 37. If line 36, Column B is zero or a negative number (loss), enter zero on line 37. If both line 36, Columns A and B are negative numbers (losses), enter zero on line 37. If line 36, Column B is greater than line 36, Column A, enter 1.00 on line 37. If Column A is not completed, enter zero on line 37.

Note: If you can be claimed as a dependent on another person's return fill in the oval under line 37. Complete the worksheet on page 25 and enter the appropriate amount on line 40a if you do not itemize your deductions.

Lines 38a to 38f

Itemized Deductions

Taxpayers who itemize their deductions may deduct certain kinds of expenses from their adjusted gross income.

Taxpayers who do not itemize their deductions may reduce their adjusted gross income by the amount of the prorated standard deduction appropriate to their filing status. The amount of the prorated standard deduction is determined on lines 40a and 40b.

You will fall into one of the three classes below:

You MUST itemize deductions,
You choose to itemize, or
You do not itemize.

The three classes are described as follows:

You MUST Itemize Deductions

You must itemize deductions if:

You are married, filing a separate return, and your spouse itemizes.
You are making a return under IRC section 443(a)(1) for a period of less than 12 months on account of a change in your annual accounting period.
You were a nonresident alien or dual-status alien during the taxable year.

You Choose to Itemize

You may choose to itemize your deductions if you are:

Married and filing a joint return, or a Qualifying widow(er) with dependent child, and your itemized deductions are more than $4,000 multiplied by your ratio of Hawaii AGI to Total AGI.
Married and filing a separate return, or Single, and your itemized deductions are more than $2,000 multiplied by your ratio of Hawaii AGI to Total AGI.
A Head of Household, and your itemized deductions are more than $2,920 multiplied by your ratio of Hawaii AGI to Total AGI.
A dependent of another taxpayer and your itemized deductions are more than the greater of (1) $500; or (2) your earned income up to the amount of the standard deduction for your filing status; multiplied by your ratio of Hawaii AGI to Total AGI.

You DoNot Itemize

If your itemized deductions are less than the prorated standard deduction amount for your filing status (or you choose not to itemize), go to line 40a and enter your standard deduction amount there (unless you MUST itemize as described earlier).

If you itemize, you can deduct part of your medical and dental expenses, and amounts you paid for certain taxes, interest, contributions, casualty and theft losses, and other miscellaneous expenses. These deductions are explained on the pages that follow.

Please note that a nonresident (i.e., a U.S. resident who is not a resident of Hawaii, a nonresident alien or a dual status alien) and a part-year resident (for the period of nonresidency) may not be allowed a deduction at all or allowed a deduction only in part even if such a deduction is otherwise provided for in the law.

A deduction is not allowed at all if it can be tied to a specific investment, property, or activity carried on outside Hawaii, or which results in income which is not subject to taxation by Hawaii. Examples include income taxes paid to a state other than Hawaii on wages earned as an active duty serviceman stationed in Hawaii and mortgage interest connected with property located outside Hawaii.

A deduction may be allowed either in full or in part depending on which of the following three classes of deductions it falls in.

Class I: If the deduction is connected with income arising in Hawaii and taxable to a nonresident under Hawaii income tax law, it is allowed in full.

Deductions in this class include:

(a) All the ordinary and necessary expenses of conducting a business;

(b) Income tax paid to Hawaii;

(d) Casualty losses incurred in a trade or business; and

(e) Losses sustained in transactions entered into for profit in real property and tangible personal property.

Class II: If the deduction is connected with property (other than property associated with income arising in Hawaii falling in Class I) having a tax situs in Hawaii, it is allowable in full. Deductions in this class include:

(a) Real property tax on a residence located in Hawaii;

(b) Interest on a mortgage connected with property located in Hawaii; and

(c) Casualty and theft losses on nonbusiness property located in Hawaii allowed only to the extent that the total losses, after the $100 deduction, exceed 10% of the adjusted gross income.

Class III: If a deduction allowed under Hawaii law is not tied to a specific investment, property, or activity carried on outside Hawaii or which results in income not subject to taxation by Hawaii, and does not fall in either Class I or II above, it is allowed only to the extent of the ratio of adjusted gross income attributable to Hawaii to the total adjusted gross income attributable to worldwide sources. Deductions in this class include:

(a) Medical expenses; and

(b) Contributions.

If you do itemize, your deductions are generally figured on Worksheets NR-1 to NR-6 on page 39 if you are a nonresident, or on Worksheets PY-1 to PY-6 on page 40 if you are a part-year resident. Enter the amounts on Form N-15, lines 38a to 38f.

Line 38a

Medical and Dental Expenses

Before you can figure your total deduction for medical and dental expenses, you must complete your Form N-15 through line 37.

Only that part of your medical and dental expenses that is more than 7.5% of your Hawaii adjusted gross income is deductible.

Include medical and dental bills you paid for:

Yourself;
Your spouse;
All dependents you list on your return;
Your child whom you do not claim as a dependent because of the rules explained on page 9 for Children of Divorced or Separated Parents; and
Any person that you could have listed as a dependent on your return if that person had not received $3,500 or more of gross income or had not filed a joint return.

Example - You gave more than half of your mother's support but cannot list her as a dependent because she received $3,500 of wages during 2008. If part of your support was the payment of her medical bills, you can include that part in your medical expenses.

You should include all amounts you paid during 2008, but do not include amounts repaid to you, or paid to anyone else, by hospital, health or accident insurance, or your employer, or paid through a medical savings account or health savings account.

Examples of Medical and Dental Payments You CAN Deduct

To the extent you were not reimbursed, you can deduct what you paid for:

Qualified long-term care services.
Premiums for qualified long-term care contracts, subject to dollar limitations based on a person's age. See the federal instructions to Form 1040 for the dollar limits.
Hospital, medical, dental, and extra Medicare (Medicare B) insurance.
Prescription drugs and insulin.
Medical doctors, dentists, eye doctors, gynecologists, chiropractors, osteopaths, podiatrists, psychiatrists, psychologists, physical therapists, acupuncturists, and psychoanalysts (medical care only).
Medical examinations, X-ray and laboratory services, insulin treatment, and whirlpool baths the doctor ordered.
Nursing help. If you pay someone to do both nursing and housework, you can deduct only the cost of nursing help.
Hospital care (including meals and lodging), clinic costs, lab fees.
Medical treatment at a center for drug addicts or alcoholics.
Medical aids such as hearing aids (and batteries), false teeth, eyeglasses, contact lenses, braces, orthopedic shoes, crutches, wheelchairs, guide dogs and the cost of maintaining the dogs.
Ambulance service and other travel costs to get medical care. If you used your own car, you can claim what you spent for gas and oil to go to and from the place you received medical care; or you can claim 19 cents a mile (27 cents a mile beginning July 1, 2008). Add parking and tolls to the amount you claim under either method.
Cosmetic surgery or procedure that is necessary to correct a deformity arising from, or directly related to:
- a congenital abnormality;
- a personal injury resulting from an accident or trauma; or
- a disfiguring disease.

Examples of Medical and Dental Payments You CANNOT Deduct

You cannot deduct the following:

The basic cost of Medicare Insurance (Medicare A). Note: If you are 65 or over and are not entitled to social security benefits, you may deduct premiums you voluntarily paid for Medicare A coverage.
Life insurance or income protection policies.
The 1.45% hospital insurance benefits tax withheld from your pay as part of the social security tax or paid as part of the self-employment tax.
Nursing care for a healthy baby. (Part-year residents may qualify for the child care credit; see Schedule X, Part III.)
Illegal operations or drugs.
Nonprescription medicines or drugs.
Travel your doctor told you to take for rest or change.
Funeral, burial, or cremation costs.
Amounts paid for cosmetic surgery which is directed at improving the appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.

Note: If expenses for cosmetic surgery are NOT deductible as medical expenses, then amounts paid for insurance coverage for such expenses are

NOT deductible. Furthermore, if an employer health plan reimburses you for such expenses, the reimbursement must be included in your gross income.

Nonresidents: If you itemized deductions on your 2008 federal return, enter the number from line 1 of federal Form 1040, Schedule A on Worksheet NR-1, line 4.If you did not itemize on your 2008 federal return, consult the instructions above to see which medical and dental expenses you may deduct. Complete Worksheet NR-1 on page 39.

Part-year residents: If you itemized deductions on your 2008 federal return, enter the number from line 1 of federal Form 1040, Schedule A on Worksheet PY-1, line 4.If you did not itemize on your 2008 federal return, consult the instructions above to see which medical and dental expenses you may deduct. Complete Worksheet PY-1 on page 40.

Line 38b Taxes

Certain taxes you paid during the year can be deducted.

Taxes You CAN Deduct

State and Local Income Taxes

Include on this line:

State and local income taxes withheld from your salary (as shown on your federal Form W-2) and withheld from your unemployment compensation (as shown on your federal Form 1099-G), estimated tax payments made in 2008, and payments made in 2008 for a prior year;
Any part of a prior year refund of state or local income taxes that you chose to have credited to your 2008 estimated state or local income taxes; and
The NET amount of taxes withheld from the sale of Hawaii real property interests.

Do not reduce your deduction by any tax refund or credit for prior year state and local income taxes you received in 2008. See instead the instructions for line 10.

For more information about the treatment of taxes withheld from the sale of real property interests, see Tax Information Release No. 2002-2, "Withholding of State Income Taxes on the Disposition of Hawaii Real Property".

Real Estate Taxes

Include taxes that you paid on property you own that was not used for business.

If your mortgage payments include your real estate taxes, deduct only the amount equal to the real estate taxes actually paid by the mortgage company to the taxing authority.

Personal Property Taxes

Include personal property tax you paid, but only if it is based on value alone and it is charged on a yearly basis. Note: Hawaii does not have a personal property tax. However, you may include personal property taxes you paid to other states.

Other Taxes

Include any other deductible tax such as foreign income taxes.

Taxes You CANNOT Deduct

Federal income tax.
Social security tax (FlCA).
Medicare tax.
Railroad retirement tax (RRTA).
Federal excise tax on personal property, transportation, telephone, and gasoline.
Custom duties.
Federal estate and gift taxes. (However, see Miscellaneous Deductions on page 24).
Certain state and local taxes, including:
- Tax on gasoline.
- Hawaii motor vehicle registration fees, including car inspection fees.
- Tax on liquor, beer, wine, cigarettes and tobacco.
- Assessments for sidewalks or other improvements to your property.
- Taxes paid for your business or profession. (These business taxes are deducted elsewhere.)
- Tax you paid for someone else.
- License fees. (Marriage, driver's, dog, hunting, auto, etc.)
- Inheritance tax. i. General sales taxes. Page 21

Nonresidents: Consult the instructions above to see which taxes you may deduct. Please note that you may only deduct Hawaii income taxes paid or withheld, and real estate taxes paid on property located in Hawaii. Complete Worksheet NR-2 on page 39.

Part-year residents: If you itemized deductions on your 2008 federal return, you may enter the same amount from Form 1040, Schedule A, line 9 on Worksheet PY-2, line 12.

Exception: If you are a federal employee receiving a Cost Of Living Allowance (COLA), not all of your Hawaii income taxes are deductible for federal purposes. (See IRS Revenue Ruling 74-140, 1974-1 C.B. 50, for more information.) Enter on line 8 of Worksheet PY-2 on page 40 the entire amount of state and local income taxes you paid in 2008, even if you reported a different amount on line 5 of federal Form 1040, Schedule A. Enter the amounts from lines 6, 7, and 8 of federal Schedule A on lines 9, 10, and 11, respectively, of Worksheet PY-2.

If you did not itemize deductions on your 2008 federal return, consult the instructions above to see which taxes you may deduct. Complete Worksheet PY-2 on page 40.

Line 38c

Interest Expense

Note: Act 93, SLH 2008, extends the federal provision that treats mortgage insurance premiums as home mortgage interest to amounts paid or incurred before January 1, 2011.

You should show on Worksheet NR-3 or PY-3 interest on non-business items only. Business-related interest is deducted elsewhere.

Except for certain mortgage interest, the amount of your personal interest expense (such as credit card interest) is not allowedasanitemizeddeduction on Worksheet NR-3 or PY-3.

Home Mortgage Interest. - In most cases, you will be able to deduct all of your home mortgage interest. The following rules apply to any loans secured by your main home, including first and second mortgages, home equity loans and refinanced mortgages. Whether your home mortgage interest is deductible depends on the date you took out the mortgage, the amount of the mortgage and your use of its proceeds.

If ALL of your mortgages fit into one or more of categories a., b., and c. below, you can deduct all of the interest on those mortgages. If one or more of your mortgages does not fit into any of the categories below, see federal Publication 936, Limits on Home Mortgage Interest Deduction, to figure the amount of interest you can deduct.

a. Mortgages you took out on your main home ON or BEFORE October 13, 1987. These mortgages also include line-of-credit mortgages you had on October 13, 1987, and mortgages you had on October 13, 1987, that you refinanced after that date. But see Special Rules if you refinanced or borrowed additional amounts on a line-of-credit mortgage after October 13, 1987.

b. Mortgages you took out on your main home AFTER October 13, 1987, to buy, build, or improve your home, but only if these mortgages plus any mortgages in a. above totaled $1 million or less throughout 2008. The limit is $500,000 or less if married filing separately.

c. Mortgages you took out AFTER October 13, 1987, on your main home, OTHER THAN to buy, build, or improve your home, but only if these mortgages totaled $100,000 or less throughout 2008. The limit is $50,000 or less if married filing separately.

An example of a mortgage used for purposes other than to buy, build, or improve your home is a home equity loan you used to pay off credit card bills, to buy a car, or to pay tuition costs.

Special Rules

Refinanced Mortgages. - If you had a mortgage on your home on October 13, 1987, and refinanced it after that date for no more than the balance of the existing mortgage, all of the new mortgage is treated as a mortgage described in a. above. But, if you refinanced it for more than the balance of the existing mortgage, only the part of the new mortgage equal to the amount you owed on the mortgage at the time you refinanced is treated as a mortgage described in a. The part of the new mortgage that is more than the balance of the existing mortgage is a mortgage described in b. or c. (or b. and c. if a mixed-use mortgage - see below).

Line-of-Credit Mortgages. - If you had a line-of-credit mortgage on your home on October 13, 1987, and you borrowed additional amounts on this line of credit after that date, the additional amounts borrowed are treated as a mortgage taken out after October 13, 1987, and are subject to the rules under b. or c. (or b. and c. if a mixed-use mortgage - see below).

Mixed-Use Mortgages. - If you took out a new mortgage after October 13, 1987, (including refinancing for more than what you owe or borrowing additional amounts on a line-of-credit mortgage you had on October 13, 1987), for purposes described in both b. and c. above, you have a mixed-use mortgage. The mortgage proceeds used to buy, build, or improve the home fit into category b. and the rest of the proceeds fit into category c.

Example. You took out a mortgage on your home for $200,000 in 1980. You file as single for 2008. In March 2008, when the home had a fair market value of $400,000, and you owed $195,000 on the mortgage, you took out a home equity loan for $120,000. In 2008, you used $90,000 of the home equity loan proceeds for home improvements, and $30,000 for other purposes. You can deduct all of the interest on both mortgages. The first mortgage qualifies because it was taken out on or before October 13, 1987. The home equity loan qualifies under the dollar limits in b. and c. The part of the mortgage subject to the dollar limit in b. ($90,000) plus the first mortgage of $195,000 totaled less than $1 million. The part of the mortgage subject to the dollar limit in c. ($30,000) was less than $100,000.

Note: Additional limits apply if the total amount of all mortgages exceeds the fair market value of the home. See federal Publication 936.

What is a Home. - A home may be a house, condominium, cooperative, mobile home, boat, or similar property. It must provide basic living accommodations including sleeping space, a toilet, and cooking facilities.

More Than One Home. - If you had a main home and a second home, the dollar limits explained in b. and c. above apply to the total mortgages on both homes.

Qualified mortgage insurance premiums. - Premiums that you pay or accrue for "qualified mortgage insurance" during 2008 in connection with home acquisition debt on your qualified home are deductible as home mortgage interest. The amount you can deduct is reduced by 10% (.10) for every $1,000 or fraction thereof ($500 or fraction thereof if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately).

For the definitions of home acquisition debt and qualified home, see federal Publication 936, Home Mortgage Interest Deduction.

Qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).

Special rules for prepaid mortgage insurance. If you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the taxable year, such premiums are treated as paid in the period to which they are allocated. No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term (except in the case of qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Administration).

Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as home mortgage interest.

Example: For the 2008 tax year, H and W, married taxpayers, pay $2,000 for qualified mortgage insurance. For that tax year, H and W file a joint return that shows adjusted gross income (AGI) of $106,419. As a result, H and W's deduction for qualified mortgage insurance must be reduced by 70% of the otherwise deductible amount – 10% for each of the six full $1,000 amounts by which their AGI exceeds $100,000, and an additional 10% for the additional fraction of $1,000 ($419) by which their AGI exceeds $100,000. H and W's deduction for qualified mortgage interest is therefore $600 ($2,000 – (70% x $2,000) = $2,000 -$1,400 = $600).

You may use the Qualified Mortgage Insurance Premiums Deduction Worksheet in the instructions to federal Form 1040 to compute the amount of the deduction. In the computation, however, the Hawaii adjusted gross income amount must be used.

Investment interest deduction. - Investment interest is interest paid on money you borrowed that is allocable to property held for investment. It does not include any interest allocable to a passive activity.

Note: Expenses and interest for royalties and other income derived from any patents, copyrights, and trade secrets by an individual or a qualified high technology business are deductible.

Complete and attach Form N-158, Investment Interest Expense Deduction, to figure your deduction.

Exception. You do not have to file Form N-158 if ALL of the following apply:

Your only investment income was from interest or dividends,
You have no other deductible expenses connected with the production of the interest or dividends,
Your investment interest expense is not more than your investment income,
You have no carryovers of investment interest expense from 2007, and
You have no passive activity losses.

For more details, see federal Publication 550, Investment Income and Expenses.

Interest Expense You CANNOT Deduct

Do not include the interest you paid for -

Personal Interest.
Indebtedness of another person, when you are not legally liable for payment of the interest.
A gambling debt or other nonenforceable obligation.
Money you borrowed to buy tax-exempt securities or single-premium life insurance.
Any kind of business transaction. Business interest expenses are reported elsewhere.

See the instructions for federal Form 1040, Schedule A-Interest Expense for more information.

Nonresidents: Consult the instructions above to see which interest expense you may deduct. Please note that you may only deduct home mortgage interest secured by a property located in Hawaii and points paid thereon. Complete Worksheet NR-3 on page 39.

Part-year residents: If you itemized deductions on your 2008 federal return, you may write the amount from line 15 of your 2008 federal Schedule A on Worksheet PY-3, line 24.

Exception:

If you had to file a 2008 federal Form 4952, you must refigure your investment interest deduction for state tax purposes on Hawaii Form N-158. Enter the amount from Form N-158 on line 23 of Worksheet PY-3. Enter the amounts from lines 10, 11, 12, and 13 of federal Form 1040, Schedule A, on the corresponding lines of Worksheet PY-3. Attach Form N-158 to your return.
If you filed a 2008 federal Form 8396, and you reduced your deduction for home mortgage interest on federal Form 1040, Schedule A, by the amount on line 3 of federal Form 8396, you must refigure your home mortgage interest for state tax purposes. Include the amount from line 3 of federal Form 8396 on line 19 of Worksheet PY-3. Enter the amounts from lines 11, 12, 13, and 14 of federal Form 1040, Schedule A, on the corresponding lines of Worksheet PY-3.

If you did not itemize deductions on your 2008 federal return, consult the instructions above to see which interest expense you may deduct. Complete Worksheet PY-3 on page 40.

Line 38d

Gifts to Charity

Contributions You CAN Deduct

You may deduct what you gave to organizations that are religious, charitable, educational, scientific, or literary in purpose. You may also deduct what you gave to organizations that work to prevent cruelty to children or animals. An organization that tells you it is a "501(c)(3) organization" is telling you that it falls into this category.

Examples of these organizations are:

Churches, temples, synagogues, Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girl Scouts, Boys Club of America, etc.
Fraternal orders, if the gifts will be used for the purposes listed above.
Veterans' and certain cultural groups.
Nonprofit schools, hospitals, and organizations whose purpose is to find a cure for or help people who have arthritis, asthma, birth defects, cancer, cerebral palsy, cystic fibrosis, diabetes, heart disease, hemophilia, mental illness or retardation, multiple sclerosis, muscular dystrophy, tuberculosis, etc.
Federal, State, and local governments if the gifts are solely for public purposes.

Contributions can be cash (including checks and money orders), property, or out-of-pocket expenses you paid to do volunteer work for the kinds of organizations described above. If you drive to and from the volunteer work, you can take 14 cents a mile or the actual cost of gas and oil. Add parking and tolls to the amount you claim under either method. (But don't deduct any amounts that were repaid to you.)

If you made a gift and received a benefit in return, such as food, entertainment, or merchandise, you may deduct only the amount that is more than the value of the benefit. For example, if you paid $70 to a charitable organization to attend a fund raising dinner and the value of the dinner was $40, you may deduct only $30.

If you do not know whether you can deduct what you gave to an organization, check with that organization.

Contributions You CANNOT Deduct

Political contributions (but see instructions for Miscellaneous Deductions, line 38f).
Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups.
Cost of raffle, bingo, or lottery tickets.
Tuition to a private school.
The value of your time or services.
Value of blood given to a blood bank.
The transfer of a future interest in tangible personal property (generally until the entire interest has been transferred).
Gifts to:
a. Individuals.
b. Foreign organizations.
c. Groups that are run for personal profit.
d. Groups whose purpose is to lobby for changes in the law.
e. Civic leagues, social and sports clubs, labor unions, and chambers of commerce.

Limit on the Amount You May Deduct

See federal Publication 526 to figure the amount of your deduction if any of the following applies:

Your cash contributions, or contributions of ordinary income property, are more than 30% of your Hawaii adjusted gross income.
Your gifts of capital gain property are more than 20% of your Hawaii adjusted gross income.
You gave gifts of property that increased in value, or gave gifts of the use of property.

Gifts by Cash or Check

On Worksheet NR-4, line 17; or Worksheet PY-4, line 31; enter the total contributions you made in cash or by check (including out-of-pocket expenses).

Note: Charitable contributions of $250 or more must be substantiated by a written acknowledgment from the donee organization to be deductible.

Note: You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, see federal Publication 526, Charitable Contributions.

Other Than by Cash or Check

On Worksheet NR-4, line 18; or Worksheet PY-4, line 32; enter the total contributions you made other than by cash or check. If you gave property, you should keep records stating the kind of property you gave, the name of the organization you gave it to, the date you gave it, how you figured its value at the time you gave it, and whether it was capital gain or ordinary income property. If you determine the value of a gift by an appraisal, keep a signed copy of it.

If the amount of your deduction is more than $500, you must complete and attach federal Form 8283. For this purpose, the "amount of your deduction" means your deduction before applying any income limits that could result in a carryover of contributions. If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. If your total deduction is over $5,000, you may also have to get appraisals of the values of the donated property. See federal Form 8283 and its instructions for more information

Contributions of clothing and household items after August 17, 2006. A deduction for these contributions will be allowed only if the items are in good used condition or better. However, this rule does not apply to a contribution of any single item for which a deduction of more than $500 is claimed and for which you include a qualified appraisal and federal Form 8283 with your tax return.

Nonresidents: If you itemized deductions on your 2008 federal return, write the amount from line 19 of Form 1040, Schedule A on Worksheet NR-4, line 20. You should complete all lines on Worksheet NR-4 on page 39 if:

Your charitable contribution deduction was limited based upon your federal adjusted gross income. You must refigure your charitable contribution deduction for state tax purposes using your Hawaii adjusted gross income, or
You have a contribution carryover from prior years and the amount is different for federal and State tax purposes. If you did not itemize deductions on your 2008 federal return, consult the instructions above to see which contributions you may deduct. Complete Worksheet NR-4 on page 39.

Part-year residents: If you itemized deductions on your 2008 federal return, write the amount from line 19 of Form 1040, Schedule A on Worksheet PY-4, line 34.

You should complete all lines on Worksheet PY-4 on page 40 if:

Your charitable contribution deduction was limited based upon your federal adjusted gross income. You must refigure your charitable contribution deduction for state tax purposes using your Hawaii adjusted gross income, or
You have a contribution carryover from prior years and the amount is different for federal and State tax purposes. If you did not itemize deductions on your 2008 federal return, consult the instructions above to see which contributions you may deduct. Complete Worksheet PY-4 on page 40.

Line 38e

Casualty and Theft Losses

Use line 38e to report casualty or theft loss(es) of property that is not trade, business, or rent or royalty property.

Losses You CAN Deduct

You may be able to deduct all or part of each loss caused by theft, vandalism, fire, storm, and car, boat, and other accidents or similar causes.

If you have a nonbusiness casualty loss that is covered by insurance, you cannot take the casualty loss deduction unless you file a timely insurance claim for that loss. You can deduct nonbusiness casualty or theft losses only to the extent that:

The amount of EACH separate casualty or theft loss is more than $100, and
The total amount of ALL losses during the year (reduced by the $100 limit) is more than 10% of your adjusted gross income on Form N-15, line 36, column B.

You may also deduct the costs of proving that you had a property loss. Examples of these costs are appraisal fees and photographs used to establish the amount of your loss.

Losses You CANNOT Deduct

Money or property misplaced or lost.
Breakage of china, glassware, furniture, and similar items under normal conditions.
Progressive damage to property (buildings, clothes, trees, etc.) caused by termites, moths, other insects, or disease.

Nonresidents: Complete federal Form 4684, Casualties and Thefts, to figure your loss. Please note that the property must be in Hawaii and the casualty and theft loss must have occurred in Hawaii. Write the amount from line 16 of federal Form 4684 on line 22 of Worksheet NR-5 on page 39, fill in Worksheet NR-5, and attach a copy of federal Form 4684 to Form N-15.

Part-year residents: Complete federal Form 4684, Casualties and Thefts, to figure your loss. Please note that for the period of nonresidency, the property must be in Hawaii and the casualty and theft loss must have occurred in Hawaii. Write the amount from federal Form 4684, line 16 on line36of Worksheet PY-5 on page 40, and fill in Worksheet PY-5. Attach a copy of federal Form 4684 to Form N-15.

Line 38f

Miscellaneous Deductions

In General

Most miscellaneous deductions cannot be deducted in full. You must subtract 2% of your Hawaii adjusted gross income from the total.

Generally, the 2% limit applies to job expenses you paid for which you were not reimbursed. The limit also applies to tax preparation fees and certain expenses you paid to produce or collect taxable income or certain tax-exempt income.

The 2% limit does not apply to certain other miscellaneous expenses that you may deduct. These expenses, such as gambling losses (to the extent of winnings) and certain job expenses of handicapped employees, can be deducted in full. See federal Publication 529, Miscellaneous Deductions, for more information.

Expenses Subject to the 2% Limit

Employee Business Expenses

Report job expenses you paid for which you were not reimbursed. Attach a copy of federal Form 2106 or 2106-EZ, if:

You claim any travel, transportation, meal, or entertainment expenses for your job; or
Your employer paid you for any of your job expenses reportable as an employee business expense.

Examples of employee business expenses to include are:

Travel, transportation, meal, or entertainment expenses.
Union dues.
Safety equipment, small tools, and supplies you needed for your job.
Uniforms your employer said you must have, and which you may not usually wear away from work.
Protective clothing required in your work, such as hard hats, and safety shoes and glasses.
Physical examinations your employer said you must have.
Dues to professional organizations and chambers of commerce.
Subscriptions to professional journals.
Fees to employment agencies and other costs to look for a new job in your present occupation, even if you do not get a new job.
Business use of part of your home, but only if you use that part exclusively and on a regular basis in your work and for the convenience of your employer. For details, including limits that apply, see federal Publication 587, Business Use of Your Home.
Education expenses you paid that were required by your employer, or by law or regulations, to keep your salary or job. In general, you may also include the cost of keeping or improving skills you must have in your job. For more details, see federal Publication 508, Educational Expenses. Some education expenses are not deductible. See Expenses You MAY NOT Deduct on page 25.

Tax Preparation Fees

Report the total fees you paid to prepare your federal and Hawaii tax return, including fees paid for filing your return electronically. But do not include fees deducted elsewhere, such as business expenses.

Other Expenses

Note: Expenses and interest for royalties and other income derived from any patents, copyrights, and trade secrets by an individual or a qualified high technology business are deductible.

Report the total amount you paid to produce or collect taxable income and certain tax-exempt income as stated in the above note, and manage or protect property held for earning income. But do not include expenses deducted elsewhere. Attach a statement showing the type and amount of each expense to Form N-15. Examples of these expenses are:

Safe deposit box rental.
Certain legal and accounting fees.
Clerical help and office rent.
Custodial (e.g., trust account) fees.
Your share of the investment expenses of a regulated investment company.
Certain losses on uninsured deposits in an insolvent or bankrupt financial institution. For details, including limits on the amount you can deduct, see federal Publication 529.
Deduction for repayment of amounts under a claim of right whether more or less than $3,000. See Repayments in federal Publication 525, Taxable and Nontaxable Income, for more information.
Certain expenses related to an activity not engaged in for profit. For details, get federal Publication 535, Business Expenses.

Expenses NOT Subject to the 2% Limit

Other Deductions

Report only the following expenses:

Gambling losses, but only to the extent of gambling winnings that were reported on Form N-15, line 19.
Federal estate tax on income in respect of a decedent.
Amortizable bond premium on bonds acquired before October 23, 1986.
Certain unrecovered investment in an annuity (IRC section 72(b)(3)). For details, see federal Publication 575, Pension and Annuity Income.
Impairment-related work expenses of a handicapped person. Page 24

List the type and amount of each expense and attach a copy of the list to your return. For more information on these expenses, get federal Publication 529, Miscellaneous Deductions.

Political Contributions

Report:

Political contributions not in excess of $250 in the year (up to $500 on a joint return) to a central or county committee of a political party whose candidate was on the ballot for the immediately previous general election; and
Contributions to candidates who agreed to abide by the campaign spending limits set by law, but you can't deduct more than $1,000 in a year ($2,000 on a joint return) total, and you can't deduct more than $250 ($500 on a joint return) to any one candidate.

In order to claim a deduction to candidates who agreed to abide by the campaign spending limits, you must attach a receipt to Form N-15. Canceled checks or copies of the same shall be considered adequate forms of receipt.

If you do not know whether the candidate agreed to abide by the campaign spending limits, contact the Campaign Spending Commission.

Expenses You MAY NOT Deduct

Some expenses are not deductible at all. Examples are:

Political contributions to candidates who did not agree to abide by the campaign spending limits.
Personal legal expenses.
Lost or misplaced cash or property (but see casualty and theft losses).
Expenses for meals during regular or extra work hours.
The cost of entertaining friends.
Expenses of going to or from work.
Education that you need to meet minimum requirements for your job or that will qualify you for a new occupation.
Expenses of:
a. Travel as a form of education.
b. Attending a seminar, convention, or similar meeting unless it is related to your employment.
c. Adopting a child, including a child with special needs.
Fines and penalties.
Expenses of producing tax-exempt income, except for expenses for royalties and other income derived from any patents, copyrights, and trade secrets by an individual or a qualified high technology business.

Nonresidents: As a nonresident of Hawaii, all miscellaneous deductions allowed under Hawaii law may not be allowed to you. If it is allowed, you must additionally determine if it is allowed in full or whether it is subject to limitation by the ratio of Hawaii adjusted gross income to total adjusted gross income.

In general, a miscellaneous deduction is not allowed if the expense incurred can be directly associated with activities or properties producing income which is not taxable to Hawaii. A miscellaneous deduction is allowed in full if the expense incurred can be directly associated with activities or properties producing income which is taxable to Hawaii. A miscellaneous deduction is limited by the ratio of Hawaii adjusted gross income to total adjusted gross income if the expense cannot be linked to a specific activity or property. Consult the instructions above to see which miscellaneous deductions you may deduct.

Part-year residents: If you did not itemize deductions on your 2008 federal return, consult the instructions above to see which miscellaneous deductions you may deduct.

If you itemized deductions on your 2008 federal return, take the amounts on Form 1040, Schedule A, lines 24 and 28 and write them on lines 48 and 57 of Worksheet PY-6 on page 40. Then, complete the worksheet.

Note for nonresidents and part-year residents: If you made political contributions in 2008, you may be able to deduct some or all of your contributions regardless of the amount of your adjusted gross income. See Political Contributions on this page.

Line 39

Total Itemized Deductions

Your state income tax will be less if the total of your itemized deductions is larger than your prorated standard deduction. To figure your itemized deductions, fill in lines 38a to 38f.

If the amount on Form N-15, line 36, Column B, is $100,000 or less ($50,000 if married filing separately), add lines 38a through 38f, and enter the result on line 39.

People with higher incomes may not be able to deduct all of their itemized deductions. If the amount on Form N-15, line 36, Column B, is more than $100,000 ($50,000 if married filing separately), use the worksheet on page 41 to figure the amount you may deduct.

Line 40a

Standard Deduction

Taxpayers who do not itemize their deductions may reduce their adjusted gross income by the amount of their prorated standard deduction appropriate to their filing status. The amount of the standard deduction for each filing status is listed below. Enter the amount appropriate to your filing status on line 40a.

Filing Status	Standard Deduction
Single	$2,000
Married filing jointly	4,000
Married filing separately	2,000
Head of Household	2,920
Qualifying Widow(er)	4,000

Standard Deduction for Dependents. If you can be claimed as a dependent by someone else and you do not itemize your deductions, your standard deduction is limited to the greater of $500 or your earned income (up to the full standard deduction for your filing status). The standard deduction for an individual who can be claimed as a dependent on the tax return of another taxpayer is computed as follows:

A. Enter your earned income (defined below). If none, enter zero...............	A.
B. Minimum amount...............	B. 500.00
C. Compare the amounts on lines A and B above. Enter the LARGER of the two amounts here .................	C.
D. Maximum amount. Enter the full standard deduction for your filing status, shown in the chart, here..............	D.
E. Compare the amounts on lines C and D above. Enter the SMALLER of the two amounts here and on Form N-15, line 40a. ............	E.

Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also includes any amount received as a scholarship that you must include in your income. Generally, your earned income is the total of the amount(s) you reported on Form N-15, lines 7 and 12, Column A, minus the amount, if any, on line 27, Column A.

Special Rule for Nonresident and Dual-Status Aliens.- If you were a nonresident or dual-status alien during the tax year, you cannot claim the standard deduction. You must itemize any allowable deductions.

Line 40b

Prorated Standard Deduction

Multiply line 40a by the ratio on line 37.

Line 41

Line 36, Column B minus line 39 or 40b, whichever applies. This line MUST be filled in. If line 41 is a negative number, shade the minus (-) in the box to the left of the amount boxes.

Line 42a

Exemptions Regular Exemptions

Multiply $1,040 by the total number of exemptions you claimed on line 6e. Remember, if you can be claimed as a dependent on another person's tax return, you may not claim an exemption for yourself.

Blind, Deaf, or Totally Disabled - Definition, Certification, and Exemptions

Fill in the appropriate oval(s) on line 42a if you are blind, deaf or totally disabled and your impairment has been certified. You must submit a completed Form N-172 prior to filing your return in order to claim this exemption. If you do not, the exemption will be disallowed and your return processed without the disability exemption(s) claimed.

"Blind" means a person whose central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or whose visual acuity is greater than 20/200 but is accompanied by a limitation in the field of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.

"Deaf" means a person whose average loss in the speech frequencies (500-2000 Hertz) in the better ear is 82 decibels, A.S.A., or worse.

"Person totally disabled" means a person who is totally and permanently disabled, either physically or mentally, which results in the person's inability to engage in any substantial gainful business or occupation. It is presumed that a person whose earned income, before deductions and exemptions, exceeds $30,000 per year is engaged in a substantial, gainful business or occupation.

The impairment of sight, deafness or disability shall be certified on the basis of a written report on an examination performed by a qualified ophthalmologist, qualified optometrist or a qualified otolaryngologist, licensed audiologist, or a qualified physician, as the case may be, on Form N-172.

A blind, deaf or totally disabled person who qualifies, may be allowed a Disability Exemption of $7,000. The Disability Exemption is in lieu of the regular personal exemption of $1,040. The following maximum exemptions are allowed:

One individual (any filing status)	$7,000
Husband and Wife (non-disabled spouse under 65)	$8,040
Husband and Wife (non-disabled spouse age 65 or over)	$9,080
Husband and Wife (both disabled)	$14,000

Note: If you claim this special exemption you will not be able to claim the additional exemptions for your children or other dependents, or for being 65 or older.

Enter the appropriate amount on line 42a.

For more information, see Tax Information Release No. 89-3, "State Tax Benefits Available to Persons with Impaired Sight, Impaired Hearing, or Who are Totally Disabled" and Tax Information Release No. 94-2, "State Tax Benefits Available to Persons Totally Disabled".

Line 42b

Prorated Exemption

Multiply line 42a by the ratio on line 37.

Line 43

Taxable Income

Line 41 minus line 42b, but not less than zero.

Tax Computation

Line 44

Tax

To figure your tax, you will use one of the following methods. Read the conditions below to see which you should use, and fill in the appropriate oval on line 44 if you use the tax table, tax rate schedules, or alternative tax on capital gains. Fill in the oval for tax from the applicable forms if you use Form N-168 or Form N-615. Then, go to the Tax Computation Worksheet on page 41.

Tax Table

If your taxable income is less than $100,000, you MUST use the Tax Table to find your tax.

Be sure you use the correct column in the Tax Table. After you have found the correct tax, enter that amount on line 44.

There is an example at the beginning of the table to help you find the correct tax.

Tax Rate Schedules

You must use the Tax Rate Schedules to figure your tax if your taxable income is $100,000 or more.

Form N-168

An individual engaged in a farming or fishing business may elect to average their farm or fishing income over a three-year period. See Form N-168 for more information.

Form N-615

If a child under age 14 has investment income of more than $1,000, use Form N-615 to see if any of the child's investment income is taxed at the parent's rate and, if so, to figure the child's tax. See Form N-615 for more information.

Alternative Tax on Capital Gains

If you have a Hawaii net capital gain, you may be able to reduce your tax using the Tax on Capital Gains Worksheet on page 41 if your taxable income is over $48,000 ($24,000 for Single, and Married Filing Separately, or $36,000 for Head of Household classifications). If your taxable income is $48,000 ($24,000 for Single, and Married Filing Separately, or $36,000 for Head of Household classifications) or under, do not use the Tax on Capital Gains Worksheet on page 41.

Total Tax Liability

Use the Tax Computation Worksheet on page 41 to figure your total tax liability.

Nonrefundable Credits

Line 45

Total Nonrefundable Tax Credits

If you are claiming any nonrefundable tax credits, you must use Schedule CR, Schedule of Tax Credits, to summarize the total nonrefundable tax credits claimed. Complete Part I of Schedule CR, and enter the amount from Schedule CR, line 14, on Form N-15, line 45. Attach Schedule CR directly behind Form N-15. The following nonrefundable tax credits are included on Schedule CR:

Credit for Income Taxes Paid to Other States and Countries

Note: This credit may not be claimed by nonresidents, unless they are married and filing a joint resident or joint part-year resident return.

If you have out-of-state income that is taxed by another state or foreign country and also by Hawaii, you may claim a credit against your Hawaii income for the net income tax you paid to the other state or foreign country on income you reported in Column B while you were a Hawaii resident if you meet the following conditions:

The income was earned while you were a Hawaii resident (or you are married and filing a joint resident or joint part-year resident return) and was not exempt from Hawaii income tax;

You did not file an Election Under Act 60, SLH 1976 (see page 4);
The income on which the state or foreign tax is imposed was derived or received from sources outside Hawaii;
You were liable for and paid tax to the foreign jurisdiction (net amount of tax paid to a foreign jurisdiction after all credits, reductions, and refunds allowed or allowable by the laws of the foreign jurisdiction have been deducted);
The tax paid to the other state or foreign country is an income-based tax that is imposed on both residents and nonresidents of the other state or foreign country, rather than a sales, gross receipts, withholding, or value added tax (i.e., taxes withheld on dividends paid from foreign investments do not qualify);
No credit is allowed if the foreign income is excluded on the federal return;
No credit is allowed if the foreign tax credit is allowed on the federal return;
The income must be taxed by the other state or foreign country for the same taxable year for which the Hawaii credit is claimed;
No credit is allowed for penalties or interest paid to the other state or foreign country; and
No credit is allowed for city or local income taxes paid to another state.

To figure the allowable amount of the credit, fill in the Other State and Foreign Tax Credit Worksheet on page 41. On line 5 of the worksheet, enter the net amount of tax paid to the other state after all credits, reductions, and refunds allowed or allowable by the laws of the other state have been deducted (net tax liability).

Required Attachments. If you entered any amount on line 5, you must attach a copy of the tax return(s) from the other state(s). If you entered any amount on line 6, you must attach a copy of all federal Form(s) 1116 that you are filing this year. If you are not required to file federal Form 1116, attach a copy of the payee statement (such as federal Form 1099-DIV or 1099-INT) that you received for your foreign source income.

Out-of-State Tax Refund. If you claim this credit and you later receive a tax refund from the other state or foreign country, you MUST report this to the Department of Taxation. You may be subject to penalties if you fail to make this report.

For more information, see section 235-55, HRS, and section 18-235-55, Hawaii Administrative Rules.

Credit for Beneficiaries of Foreign Trusts

Any resident beneficiary of a trust with a situs in another State may claim a credit for income taxes paid by the trust to the other State on any income that is attributable to assets other than intangibles. This credit is not allowed for trusts that are residents in a foreign country (or in any territory or possession of the United States).

The trust will inform you of what your share of the trust's income is, and how much of it is long-term capital gains. Include these amounts on lines 3 and 4, respectively, of the Other State and Foreign Tax Credit Worksheet on page 41.

The trust will also tell you your share of the tax the trust paid to the other state. Find out how much of the trust's income was attributable to real property and tangible personal property (not including stocks, bonds, mortgages, and other intangibles). Divide that number by the total amount of the trust's income, and multiply your share of the out-of-state tax by that percentage. Include this amount on line 5 of the Other State and Foreign Tax Credit Worksheet on page 41.

Credit for Shareholders of S Corporations

A shareholder of an S corporation shall be considered to have paid a tax imposed on the shareholder in an amount equal to the shareholder's pro rata share of any net income tax paid by the S corporation to a state which does not measure the income of S corporation shareholders by the income of the S corporation. The term "net income tax" means any tax imposed on or measured by a corporation's net income.

The S corporation will inform you of what your share of its income is, and how much of it is long-term capital gains. Include these amounts on lines 3 and 4, respectively, of the Other State and Foreign Tax Credit Worksheet on page 41.

The S corporation will also tell you your share of the tax paid to the other state. Include this amount on line 5 of the Other State and Foreign Tax Credit Worksheet on page 41.

Special Rule for Part-Year Residents: If you are a part-year resident, you are only allowed a credit for the period in which you were a resident. In using the Other State and Foreign Tax Credit Worksheet on page 41, do not include income that was earned during the period of nonresidence, deductions that were connected with that income, or taxes paid or payable on that income. For more information, see Tax Information Release No. 90-3, Income Taxation and Eligibility for Credits of an Individual Taxpayer Whose Status Changes from Resident to Nonresident or Nonresident to Resident.

Carryover of the Energy Conservation Tax Credit

Note: The energy conservation tax credit expired on June 30, 2003. This credit may be claimed only if the individual has a carryover of the tax credit from a prior year.

Each individual resident taxpayer who files an individual income tax return and who has unused credits for energy conservation from the prior year may claim a tax credit against its individual income tax liability. Tax credits that exceed the individual's income tax liability are not refunded but may be used as a credit against the individual's income tax liability in subsequent years until exhausted.

For more information, see Form N-157, Carryover of the Credit for Energy Conservation.

To claim the carryover of this credit. Complete Form N-157 and Schedule CR and attach them to your return.

See the discussion for the Renewable Energy Technologies Income Tax Credit for the credit available for current system installations.

Enterprise Zone Tax Credit

A qualified enterprise zone business is eligible to claim a credit for a percentage of net income tax due the State attributable to the conduct of business within a zone and a percentage of the amount of unemployment insurance premiums paid based on the payroll of employees employed at the business firm establishments in the zone. The applicable percentage is 80% the first year; 70% the second year; 60% the third year; 50% the fourth year; 40% the fifth year; 30% the sixth year; and 20% the seventh year. This credit is not refundable and any unused credit may NOT be carried forward.

For more information, see Form N-756, Enterprise Zone Tax Credit.

To claim this credit. Complete Form N-756 and Schedule CR and attach them to your return.

Low-Income Housing Tax Credit

Note: Do not confuse this credit with the credit for low-income household renters.

Note: Nonresidents may claim this credit only if they received a distributive share of low-income housing tax credit from a Hawaii partnership, trust, estate, or S corporation.

Hawaii's low-income housing tax credit is equal to 50% of the tax credit allocated by the Housing and Community Development Corporation of Hawaii for qualified buildings located within the State of Hawaii.

Contact the Housing and Community Development Corporation of Hawaii for qualifying requirements and further information.

To claim this credit. Complete Form N-586 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Credit for Employment of Vocational Rehabilitation Referrals

The amount of the tax credit for the taxable year shall be equal to 20% of the qualified first-year wages for that year. The amount of the qualified first-year wages which may be taken into account with respect to any individual shall not exceed $6,000.

"Qualified wages" means the wages paid or incurred by the employer during the taxable year to an individual who is a vocational rehabilitation referral and more than one-half of the wages paid or incurred for such an individual is for services performed in a trade or business of the employer. "Qualified first-year wages" means, with respect to any vocational rehabilitation referral, qualified wages attributable to service rendered during the one-year period beginning with the day the individual begins work for the employer.

The credit allowed shall be claimed against net income tax liability for the taxable year. A tax credit which exceeds the taxpayer's income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

For more information, see Form N-884, Credit for Employment of Vocational Rehabilitation Referrals.

To claim this credit. Complete Form N-884 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

High Technology Business Investment Tax Credit

The credit is 35% of the investment in the year the investment is made, 25% for the first year following the year the investment was made, 20% for the second year following the investment, and 10% for each of the third and fourth years following the investment. The credit is subject to limitations and recapture requirements. The credit shall not be available for taxable years beginning after December 31, 2010.

The credit allowed shall be claimed against net income tax liability for the taxable year. A tax credit which exceeds the taxpayer's income tax liability for any of the five years that the credit is taken may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

For more information, see Form N-318, High Technology Business Investment Tax Credit.

To claim this credit. Complete Form N-318 and Schedule CR and attach them to your return. Form N-318A, which must be certified for investments made on or after July 1, 2004, also must be attached to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Carryover of the Individual Development Account Contribution Tax Credit

Note: The individual development account contribution tax credit is not available for taxable years beginning after December 31, 2004. This credit may be claimed only if the individual has a carryover of the tax credit from a prior year.

Each individual taxpayer who files an individual income tax return and who has unused credits for contributions of matching funds to an individual development account from the prior year may claim a tax credit against its individual income tax liability. Tax credits that exceed the individual's income tax liability are not refunded but may be used as a credit against the individual's income tax liability in subsequent years until exhausted.

For more information, see Form N-320, Carryover of the Individual Development Account Contribution Tax Credit.

To claim the carryover of this credit. Complete Form N-320 and Schedule CR and attach them to your return.

Technology Infrastructure Renovation Tax Credit

The amount of the tax credit for the taxable year is equal to 4% of renovation costs incurred to provide a commercial building with technology-enabled infrastructure. Renovation costs are costs incurred to plan, design, install, construct, and purchase technology-enabled infrastructure equipment to provide a commercial building with technology-enabled infrastructure. Technology-enabled infrastructure means: (1) high speed telecommunications systems that provide Internet access, direct satellite communications access, and videoconferencing facilities; (2) physical security systems that identify and verify valid entry to secure spaces, detect invalid entry or entry attempts, and monitor activity in these spaces; (3) environmental systems to include heating, ventilation, air conditioning, fire detection and suppression, and other life safety systems; and (4) backup and emergency electric power systems. The credit shall not be available for taxable years beginning after December 31, 2010.

For more information, see Form N-326, Technology Infrastructure Renovation Tax Credit.

To claim this credit. Complete Form N-326 and Schedule CR and attach them to your return.

Credit for School Repair and Maintenance

Licensed contractors, pest control operators, and professional engineers, architects, surveyors and landscape architects who are subject to Hawaii's income tax may claim an income tax credit for contributions of in-kind services for the repair and maintenance of public schools. The credit shall be an amount equal to 10% of the value of the services contributed. Certain other limitations and restrictions apply.

For more information, see Form N-330, Credit for School Repair and Maintenance.

To claim this credit. Complete Form N-330 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Carryover of the Hotel Construction and Remodeling Tax Credit

Note: The 10% nonrefundable hotel construction and remodeling tax credit may not be claimed for qualified construction or renovation costs incurred after June 30, 2003. This credit may be claimed only if the individual has a carryover of the tax credit from a prior year.

Each individual taxpayer who files an individual income tax return and who has unused credits for qualified construction or renovation costs from the prior year may claim a tax credit against its individual income tax liability. Tax credits that exceed the individual's income tax liability are not refunded but may be used as a credit against the individual's income tax liability in subsequent years until exhausted.

For more information, see Form N-314, Carryover of the Hotel Construction and Remodeling Tax Credit, and Tax Information Release No. 2000-2, Hotel Construction and Remodeling Tax Credit.

To claim the carryover of this credit. Complete Form N-314 and Schedule CR and attach them to your return.

Carryover of the Residential Construction and Remodeling Tax Credit

Note: The residential construction and remodeling tax credit may not be claimed for construction or renovation costs incurred after June 30, 2003. This credit may be claimed only if the individual has a carryover of the tax credit from a prior year.

For more information, see Form N-332, Carryover of the Residential Construction and Remodeling Tax Credit, and Tax Information Release No. 2002-3, Residential Construction and Remodeling Tax Credit.

To claim the carryover of this credit. Complete Form N-332 and Schedule CR and attach them to your return.

Renewable Energy Technologies Income Tax Credit

Each taxpayer who files an individual income tax return for 2008 may claim a tax credit against his or her individual income tax liability for an eligible renewable energy technology system installed and placed in service in Hawaii. The tax credit shall apply only to the actual cost of the solar thermal, wind powered, or photovoltaic energy system, including accessories and installation, and shall not include the cost of consumer incentive premiums unrelated to the operation of the system or offered with the sale of the system (such as "free gifts", offers to pay electricity bills, or rebates) and costs for which another credit is claimed. The dollar amount of any utility rebate shall be deducted from the cost of the qualifying system and its installation before determining the State credit. A tax credit which exceeds the taxpayer's income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

The tax credit may be claimed for the following renewable energy technology systems installed and placed in service in Hawaii:

Type of Renewable Energy Technology System	Tax Credit Rate
1. Solar thermal energy systems
a.. Single-family residential property.	The lesser of 35% of the actual cost of the system or $2,250.
b. Multi-family residential property.	Per unit: The lesser of 35% of each unit's actual cost of the system or $350.
c. Commercial property	The lesser of 35% of the actual cost of the system or $250,000.
2. Wind powered energy systems
a. Single-family residential property.	The lesser of 20% of the actual cost of the system or $1,500
b. Multi-family residential property	Per unit: The lesser of 20% of each unit's actual cost of the system or $200.
c. Commercial property.	The lesser of 20% of the actual cost of the system or $500,000.
3. Photovoltaic energy systems
a. Single-family residential property.	The lesser of 35% of the actual cost of the system or $5,000.
b. Multi-family residential property.	Per unit: The lesser of 35% of each unit's actual cost of the system or $350.
c. Commercial property.	The lesser of 35% of the actual cost of the system or $500,000.

For more information, see Form N-334, Renewable Energy Technologies Income Tax Credit.

To claim this credit. Complete Form N-334 and Schedule CR and attach them to your return. Also, fill in the appropriate oval on Schedule CR to indicate the type of energy system.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Ko Olina Resort and Marina Attractions and Educational Facilities Tax Credit

If you are claiming the Ko Olina resort and marina attractions and educational facilities tax credit, see Form N-336 for information.

Line 46

Line 44 minus line 45. Enter the result on this line, but not less than zero.

Tax Already Paid

Line 47

Total Hawaii Income Tax Withheld

Add the Hawaii income tax withheld as shown on your Forms HW-2, N-2, and N-4, and federal Forms W-2 and 1099-G (unemployment compensa

tion). Enter the total on this line. Attach a copy of Forms HW-2, N-2, and N-4, and federal Forms W-2 and 1099-G showing the withholding. If not attached, the withholding may be disallowed.

Note: If taxes were withheld on the sale of Hawaii real property, report this amount on line 48, "2008 Estimated Tax Payments".

Line 48

2008 Estimated Tax Payments

Enter on this line only your estimated Hawaii income tax payments you made on Form N-1 for 2008. Do not include your 2007 overpayment that you requested to have applied to your 2008 estimated tax (this amount is to be reported on line 49).

Also include on this line the amount of taxes withheld on the sale of Hawaii real property computed as follows:

1. Amount of taxes withheld as shown on Form(s) N-288A, “Statement of Withholding on Dispositions by Nonresident Persons of Hawaii Real Property Interests” ....................	________________
2. Amount of refund you already applied for on Form(s) N-288C, “Application for Tentative Refund of Withholding on Dispositions of Hawaii Real Property Interests” ....................	________________
3. Line 1 minus line 2. Include this amount on Form N-15, line 31...................	________________

Note: Attach a copy of the Form(s) N-288A showing the withholding.

If the tax was withheld for you through a partnership, estate, trust, or S corporation, see the Instructions for Pro Rata Share of Taxes Withheld and Paid by a Partnership, Estate, Trust, or S Corporation on the Sale of Hawaii Real Property Interests on page 30.

Enter the amounts paid on Forms N-1 and N-288A (less amount of refund applied for on Form N-288C) in the appropriate spaces. Add the amounts paid on Forms N-1 and N-288A (less amount of refund applied for on Form N-288C), and enter the result on line 48.

If you and your spouse paid joint estimated tax but are now filing separate income tax returns, either of you can claim all of the amount paid or you can each claim a part of it. Please be sure to show both social security numbers (or ITINs) on the separate returns. If you or your spouse paid separate estimated tax, but you are now filing a joint income tax return, add the amounts you each paid.

Follow the above instructions even if your spouse died during the year.

Line 49

2007 Overpayment Applied to 2008 Estimated Tax

Enter on this line any overpayment from your 2007 return that you applied to your 2008 estimated tax as shown on line 62 of your 2007 Form N-15.

Line 50

Amount Paid with Extension

If you made a payment with Form N-101A, enter the amount you paid on this line.

Refundable Credits

IMPORTANT! If the amount of payments plus these credits is at least $1 more than your tax, the difference will be refunded to you. It is very important that you carefully read the following instructions for each of these credits to ensure that you properly claim all the credits to which you are entitled.

Warning: Many of the following credits MUST be claimed on or before the end of the twelfth month following the end of the taxable year (December 31, 2009, for calendar year taxpayers). If you do not claim these credits within that period, the credits are waived and cannot be claimed later, even on an amended return.

Line 51

Refundable Food/Excise Tax Credit

Note: This credit may not be claimed by nonresidents.

If your total federal adjusted gross income was less than $50,000, you may qualify for this credit. See the instructions for Schedule X, Part I, on Page 34. Figure the credit on Schedule X, Part I, and enter the amount of the credit here.

Note: Do not claim this credit if you are being claimed or eligible to be claimed as a dependent by any taxpayer for federal or Hawaii income tax purposes.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Line 52

Credit for Low-Income Household Renters

Note: This credit may not be claimed by nonresidents.

If you occupy and pay rent for real property within the State as your residence, your total adjusted gross income was less than $30,000, and the rent you paid during 2008 was more than $1,000, you may qualify for this credit. To see if you qualify, see the instructions for Schedule X, Part II, on If you qualify, figure the credit on Schedule X, Part II, and enter the amount of the credit here.

Note: Do not claim this credit if you are being claimed or eligible to be claimed as a dependent by any taxpayer for federal or Hawaii income tax purposes.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Line 53

Credit for Child and Dependent Care Expenses

Note: This credit may not be claimed by nonresidents.

Certain payments made for child and dependent care (including payments made to the State of Hawaii A+ Program) may be claimed as a credit against your tax due. To see if you qualify, see the instructions for Schedule X, Part III, on page 35. If you qualify, figure the credit on Schedule X, Part III, and enter the amount of the credit here.

Note: Do not claim this credit if you are being claimed or eligible to be claimed as a dependent by any taxpayer for federal or Hawaii income tax purposes.

Line 54

Credit for Child Passenger Restraint System

Each individual taxpayer who files an individual income tax return for the taxable year may claim a tax credit for 2008 for the purchase of one or more new child passenger restraint systems which comply with federal motor vehicle safety standards.

Note: This credit is $25 per return regardless of the cost or the number of restraint systems purchased.

To claim this credit. Enter $25 on line 54, and attach a copy of the sales invoice, which states the type of child restraint system purchased, to your return.

Your claim for this credit may be rejected if the invoice is not attached, or if 1) or 2) applies but no statement or explanation is attached.

If the invoice doesn't have your name on it, you must attach a statement saying that you and nobody else is claiming the credit for the purchase de scribed in the invoice.
If the invoice has somebody else's name on it, you must attach an explanation.

Deadline for claiming this credit. Claims for the tax credit, including any amended claims thereof, must be filed on or before the end of the twelfth month after the close of your taxable year.

Line 55

Credit for $1 General Income Tax

Act 58, Session Laws of Hawaii 2008, provides that each resident taxpayer who files an individual income tax return for the taxable year, including those who have no income or no income taxable under chapter 235, HRS, may claim a one-time $1.00 general income tax credit, provided that the taxpayer is not eligible to be claimed as a dependent for federal or State income tax purposes by another taxpayer. The credit is multiplied by the number of qualified exemptions to which the taxpayer is entitled.

The credit may be claimed for each resident individual who:

Was a resident of Hawaii for at least nine months regardless of whether the qualified resident was physically in Hawaii for nine months,
Is not claimed and is not eligible to be claimed as a dependent by any taxpayer for federal or Hawaii income tax purposes, and
Was not confined in jail, prison, or a youth correctional facility for the full taxable year.

Note: The credit is not based on adjusted gross income. The credit is figured on a fixed amount of $1.00 per qualified exemption. A qualified exemption does not include additional exemptions for being 65 years of age or over, or for deficiencies in vision, hearing, or other disability.

To claim this credit. There is no special form to be filed. All you need to do is multiply $1.00 by the number of your qualified exemptions. Enter the amount on line 55.

Deadline for claiming this credit. Claims for the tax credit, including any amended claims thereof, must be filed on or before the end of the twelfth month after the close of your taxable year.

Line 56

Total Refundable Tax Credits from Schedule CR

If you are claiming any of the following refundable tax credits, you must use Schedule CR, Schedule of Tax Credits, to summarize the total refundable tax credits claimed. Complete Part II of Schedule CR, and enter the amount from Schedule CR, line 21, on Form N-15, line 56. Attach Schedule CR directly behind Form N-15.

The following refundable tax credits are included on Schedule CR:

Capital Goods Excise Tax Credit

A 4% credit is available to Hawaii businesses that acquire qualifying business property and place it in service during the taxable year.

For more information, see the instructions for Form N-312 and Tax Information Release No.88-6, Capital Goods Excise Tax Credit, Tax Information Release No. 88-8, Capital Goods Excise Tax Credit Recapture, and Tax Information Release No. 89-4, The Taxpayer Who Is Entitled To The Capital Goods Excise Tax Credit When the Parties Characterize a Transaction As A Sale-Leaseback.

To claim this credit. Complete Form N-312 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Fuel Tax Credit for Commercial Fishers

Each principal operator of a commercial fishing vessel who files an individual income tax return may claim an income tax credit for certain fuel taxes paid during the year.

To claim this credit. Complete Form N-163 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Tax Credit for Research Activities

This 20% credit is based on the federal credit for research activities except that the federal base amounts are excluded and research must have been conducted in Hawaii. The credit shall not be available for taxable years beginning after December 31, 2010.

To claim this credit. Complete Form N-319 and Schedule CR and attach them to your return. Form N-319A, which must be certified for research expenses incurred on or after July 1, 2004, also must be attached to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Ethanol Facility Tax Credit

A credit is allowable for the investment in a qualified ethanol facility that is in production on or before January 1, 2017.

To claim this credit. Complete Form N-324 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Motion Picture, Digital Media, and Film Production Income Tax Credit

A taxpayer may claim an income tax credit of (1) 15% of the qualified production costs incurred on or after July 1, 2006, and before January 1, 2016, by a qualified production in the City and County of Honolulu, and (2) 20% of the qualified production costs incurred on or after July 1, 2006, and before January 1, 2016, by a qualified production in the Kauai, Maui, or Hawaii county. The total tax credits claimed per qualified production shall not exceed $8,000,000.

For more information, see Form N-340, Motion Picture, Digital Media, and Film Production Income Tax Credit.

To claim this credit. Complete Form N-340 and Schedule CR and attach them to your return.

Deadline for claiming this credit. Claims for this credit, including any amended claims, must be filed on or before the end of the twelfth month after the close of your taxable year.

Other Credits

Pro Rata Share of Taxes Withheld and Paid by a Partnership, Estate, Trust, or S Corporation on the Sale of Hawaii Real Property Interests

If the tax was withheld by a partnership, estate, trust or S corporation, and you are taxable on a pro rata share of the entity's gain on the sale, include ONLY the amount of your pro rata share of any net income taxes withheld and paid by the partnership, estate, trust or S corporation on Schedule CR, line 20a, and attach a copy of the Schedule K-1 issued to you by the partnership, estate, trust, or S corporation.

Note: If the partnership, estate, trust or S corporation filed a Form N-288C, "Application for Tentative Refund of Withholding on Dispositions of Hawaii Real Property Interests", you may not claim this credit for your share of the amount being refunded to the entity.

Credit From a Regulated Investment Company

A shareholder of a regulated investment company is allowed a credit for the tax paid to the State by the company on the amount of capital gains which by section 852(b)(3)(D) of the Internal Revenue Code is required to be included in the shareholder's return. The regulated investment company will notify you of the undistributed capital gains amount and the tax paid, if any. If this credit applies to you, include the amount on Schedule CR, line 20b, and attach an explanation.

Line 57

Total Payments and Credits

Add lines 47 through 56. Enter the amount on this line.

Refund or Balance Due

Line 58

Amount Overpaid

If line 57 is larger than line 46, line 57 minus line 46 is the amount overpaid.

The Hawaii School-Level Minor Repairs and Maintenance Special Fund provides moneys for school-level minor repairs and maintenance. If you have an overpayment of at least $2 ($4 if married and filing a joint return), you can choose to contribute to the Hawaii School-Level Minor Repairs and Maintenance Special Fund (line 59a).

The Hawaii Public Libraries Special Fund provides moneys to support the operations of the library system. If you have an overpayment of at least $2 ($4 if married and filing a joint return), you can choose to contribute to the Hawaii Public Libraries Special Fund (line 59b).

The Hawaii Children's Trust Fund provides moneys for the award of grants for primary and secondary prevention activities to prevent child abuse and neglect. The Domestic Violence and Sexual Assault Special Fund provides moneys for programs and grants or purchases of service that support or provide domestic violence and sexual assault intervention or prevention. The Spouse and Child Abuse Special Accounts provide moneys for staff programs, and grants or purchases of service that support or provide spouse or child abuse intervention or prevention. If you have an overpayment of at least $5 ($10 if married and filing a joint return), you can choose to contribute to these funds (line 59c).

Line 59a

Contribution to the Hawaii Schools Repairs and Maintenance Fund

If you want to contribute $2 to the Hawaii School-Level Minor Repairs and Maintenance Special Fund (or $4 if your spouse also wants to contribute and you are filing jointly), fill in the appropriate oval(s). No other amounts can be accepted. Your contribution will reduce your refund. Once made, the contribution cannot be revoked.

Line 59b

Contribution to the Hawaii Public Libraries Fund

If you want to contribute $2 to the Hawaii Public Libraries Special Fund (or $4 if your spouse also wants to contribute and you are filing jointly) fill in the appropriate oval(s). No other amounts can be accepted. Your contribution will reduce your refund. Once made, the contribution cannot be revoked.

Line 59c

Contribution to the Domestic Violence / Child Abuse and Neglect Funds

If you want to contribute $5 to the Hawaii Children's Trust Fund, the Domestic Violence and Sexual Assault Special Fund, and the Spouse and Child Abuse Special Accounts (or $10 if your spouse also wants to contribute and you are filing jointly), fill in the appropriate oval(s). No other amounts can be accepted. Your contribution will reduce your refund. Once made, the contribution cannot be revoked.

Line 61

Line 58 minus line 60.

Line 62

Applied to 2009 Estimated Tax

Enter the amount from line 61 that you want applied to your estimated tax for 2009.

We will apply amounts to your account unless you attach a request to apply it to your spouse's account. The request should include your spouse's social security number and full name.

Line 63a

Refund

Line 61 minus line 62. This is the amount that will be refunded to you. Note: If you are filing your return after the prescribed due date, the refund shown may be limited or disallowed due to the statute of limitations. In general, a claim for refund or credit for overpaid income taxes must be filed within three years after the return is filed for the taxable year, within three years of the due date for filing the return, or within two years from when the tax is paid, whichever is later. For purposes of determining whether a refund or credit is allowed, taxes paid on or before the due date of the return (e.g. taxes withheld from an employee's pay, or estimated tax payments) are considered paid on the due date of the return, without considering an extension of time to file the return.

Lines 63b

Through 63d Direct Deposit of Refund

Complete lines 63b through 63d if you want the Department of Taxation to directly deposit the amount shown on line 63a into your checking or savings account at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union) instead of sending you a check.

Note: If you owe certain past-due debt, such as child support, all or part of the overpayment on line 58 may be used (offset) to pay the past-due amount. If all or part of the overpayment on line 58 is used to pay the past-due amount, you will not be allowed to have your refund directly deposited into your checking or savings account. A check will be sent to you instead.

Note: If you are filing an amended return on Form N-15, your refund cannot be directly deposited into your checking or savings account. Direct deposit can only be used if you are filing an original return.

Why Use Direct Deposit?

You get your refund fast – even faster if you e-file!
Payment is more secure – there is no check to get lost.
More convenient. No trip to the bank to deposit your check.
Saves tax dollars. A refund by direct deposit costs less than a check.

You can check with your financial institution to make sure your deposit will be accepted and to get the correct routing and account numbers. The Department is not responsible for a lost refund if you enter the wrong account information. If you file a joint return and fill in lines 63b through 63d, you are appointing your spouse as an agent to receive the refund. This appointment cannot be changed later.

Some financial institutions will not allow a joint refund to be deposited into an individual account. If the direct deposit is rejected, a check will be sent instead. The Department is not responsible if a financial institution rejects a direct deposit.

Routing Number

The routing number must be nine digits. The first two digits must be 01 through 12 or 21 through 32. Otherwise, the direct deposit will be rejected and a check sent instead.

Your check may state that it is payable through a financial institution different from the one at which you have your checking account. If so, do not use the routing number on that check. Instead, contact your financial institution for the correct routing number to enter on line 63b.

Type of Account

On line 63c, check the applicable box to indicate whether you want your refund deposited into your checking or savings account.

Account Number

Contact your financial institution for the correct account number to enter on line 63d. The account number can be up to 17 characters (both numbers and letters). Omit spaces, hyphens, and special symbols. Enter the number from left to right and leave any unused boxes blank. Be sure not to include the check number.

Line 64

Balance Due

If line 46 is larger than line 57, line 46 minus line 57 is your balance due.

Use Form N-200V, Individual Income Tax Payment Voucher, to send your payment to the Department of Taxation.

Attach your check or money order and Form N-200V to the front of Form N-15. Write your social security number and "2008 Form N-15" on your check or money order.

Note: If you include penalty and/or interest for the late filing of your return with your payment, identify and enter these amounts on a separate sheet of paper and attach to Form N-15. Do not include the penalty and/or interest amounts for the late filing of your return in the Balance Due on line 64.

Note: If you cannot pay the full amount you owe, you can enter a payment agreement by requesting for a payment agreement after you receive the billing notice. Please be aware that penalty and interest continue to accrue on the unpaid tax amount even though you have not received the billing notice. Payments will be accepted and applied to your tax liability; however, to ensure your payments are applied correctly, your check or money order must have: (1) your name clearly printed on the check as it is printed on the tax return (if filing a joint return, also print your spouse's name), (2) your social security number (if filing a joint return, also write your spouse's social security number), and (3) the tax year and form number you filed (e.g., 2008 N-15).

Line 65

Estimated Tax Penalty

See the instructions for Penalties and Interest on page 33 and Form N-210, Underpayment of Estimated Tax by Individuals and Fiduciaries, to see if you owe a penalty for the underpayment of estimated taxes.

If you owe a penalty, enter the penalty amount on Form N-15, line 65. Do not include the penalty amount on line 58 or line 64. If you have any taxes due, include the amount of the penalty on Form N-200V. If you have an overpayment, your overpayment will be reduced automatically by the amount of the penalty.

Fill in the oval at line 65 if Form N-210 is attached.

Note: If you are a farmer or fisherman and receive a penalty notice, do not ignore it, even if you think it is in error. You may get a penalty notice even though you filed your return on time, attached Form N-210, and met the gross income from farming or fishing requirement. If you receive a penalty notice for underpaying estimated tax and you think it is in error, write to the address on the notice and explain why you think the notice is in error. Include a computation showing that you met the gross income from farming or fishing requirement.

Amended Returns

If you are filing an amended return, fill in the amended return oval at the top of Form N-15. Complete your amended return using corrected amounts through line 65. Also, see page 33 of the instructions.

If your original return has an overpayment, part or all of which was credited to 2009 estimated taxes, the amount that was credited on your original return cannot be changed unless (1) the 2009 return has not yet been filed, and (2) the amended return shows a balance due. In this situation, you may request that the amount credited to 2009 estimated taxes be applied to the balance due on the amended return by attaching a written request to the amended return.

If you contributed to the Hawaii Schools Repairs and Maintenance Fund, Hawaii Public Libraries Fund, and/or Domestic Violence / Child Abuse and Neglect Funds on your original return, your contribution(s) cannot be revoked, and you must make the same designation(s) on your amended return.

Line 66

Amount Paid (Overpaid) on Original Return

Enter on line 66 the amount paid on your original 2008 Form N-15, line 64 (plus the amount of estimated tax penalty on line 65, if any); or the amount overpaid on your original 2008 Form N-15, line 58 (less the amount of estimated tax penalty on line 65, if any). If the amount is an overpayment, shade the minus (-) in the box to the left of the amount boxes.

Line 67

Balance Due (Refund) With Amended Return

If no amount was entered on line 66, enter on line 67 the amount, if any, from line 63a (less the amount of estimated tax penalty on line 65, if any) or line 64 (plus the amount of estimated tax penalty on line 65, if any) of the amended return.

If there is an amount on line 66 and that amount is:

a. A payment and there is an amount on line58, complete the following worksheet:
1. Amount from line 58 (less the amount of estimated tax penalty on line 65, if any)................	__________________
2. Amount from line 66 ................	__________________
3. Add line 1 and line 2 ...........................	__________________

Enter the amount from line 3 of the worksheet on line 67. This is the (text) amount of your overpayment on your amended return. Shade the minus (-) in the box to the left of the amount boxes.

b. A payment and there is an amount on line 64, complete the following worksheet
1. Amount from line 64 (plus the amount of estimated tax penalty on line 65, if any) ............	__________________
2. Amount from line 66...............	__________________
3. Line 1 minus line 2 ...............	__________________

Enter the amount from line 3 of the worksheet on line 67. If the amount on line 1 of the worksheet is larger than the amount on line 2 of the worksheet, this is the amount you owe on your amended return. If the amount on line 2 of the worksheet is larger than the amount on line 1 of the worksheet, this is the amount of your overpayment on your amended return. Shade the minus (-) in the box to the left of the amount boxes.

c. An overpayment and there is an amount on line 58, complete the following worksheet:
1. Amount from line 58 (less the amount of estimated tax penalty on line 65, if any) .............	__________________
2. Amount from line 66........................	__________________
3. Line 1 minus line 2 ............................	__________________

Enter the amount from line 3 of the worksheet on line 67. If the amount on line 1 of the worksheet is larger than the amount on line 2 of the worksheet, this is the amount of your overpayment on your amended return. Shade the minus (-) in the box to the left of the amount boxes. If the amount on line 2 of the worksheet is larger than the amount on line 1 of the worksheet, this is the amount you owe on your amended return.

d. An overpayment and there is an amount on line 64, complete the following worksheet:
1. Amount from line 64 (plus the amount of estimated tax penalty on line 65, if any) ........	__________________
2. Amount from line 66...................	__________________
3. Add line 1 and line 2.......................	__________________

Enter the amount from line 3 of the worksheet on line 67. This is the amount you owe on your amended return. If you have an overpayment on your amended return, you may contribute to the (1) Hawaii Schools Repairs and Maintenance Fund (line 59a) if line 59a on your original return was blank, (2) Hawaii Public Libraries Fund (line 59b) if line 59b on your original return was blank, and/or (3) Domestic Vio( text) lence / Child Abuse and Neglect Funds (line 59c) if line 59c on your original return was blank.

Subtract the amount contributed to the above funds from the amount of overpayment available and enter the difference on line 67. Shade the minus (-) in the box to the left of the amount boxes. Be sure that the sum of the amounts entered on lines 59a, 59b, 59c, and 67 is not more than the overpayment available.

If you have an amount due on your amended return, use Form N-200V, Individual Income Tax Payment Voucher, to send your payment to the Department of Taxation. Attach your check or money order and Form N-200V to the front of Form N-15.

Now continue with Step 7 below.

Step 7

Check your return to make sure it is correct.

Step 8

Third Party Designee

If you want to authorize the Department of Taxation to discuss your tax return with a person that you designate, enter the name of your third party designee, telephone number, and identification number. You are authorizing the Department to call your third party designee to answer any questions that may arise during the processing of your tax return.

Note: This designation is not a full power of attorney and does not replace Form N-848.

Step 9

Hawaii Election Campaign Fund

This fund helps to provide accountability, transparency, integrity and a level playing field for State and County candidates in Hawaii elections. If you have a tax liability of at least $3 ($6 if married and filing a joint return), you can choose to contribute to the Hawaii Election Campaign Fund.

If you want $3 to go to the fund, fill in the "Yes" oval. If you are filing a joint return, and your spouse wants $3 to go to the fund, fill in the "Yes" oval.

If you fill in the "Yes" oval, your tax liability or refund due will not change.

Once made, the designation cannot be revoked.

Step 10

Sign and date your return.

Form N-15 is not considered a valid return unless you sign it. If you are unable to sign the return (due to disease or injury, etc.), you can appoint an agent to sign your return. A return signed by an agent must have a power of attorney attached that authorizes the agent to sign for you. You can use Form N-848, Power of Attorney.

Be sure to date your return. If you have someone else prepare your return, you are still responsible for the correctness of the return.

Joint Return. Your spouse must also sign Form N-15 if it is a joint return. If your spouse cannot sign because of disease or injury and tells you to sign, you can sign your spouse's name in the proper space on the return followed by the words "By (your name), Husband (or Wife)." Be sure to also sign in the space provided for your signature. Attach a dated statement, signed by you, to the return. The statement should include the form number of the return you are filing, the tax year, and the reason your spouse cannot sign, and that your spouse has agreed to your signing for him or her.

If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian.

If your spouse is unable to sign the return because he or she is serving in a combat zone, and you do not have a power of attorney or other statement, you can sign for your spouse. Attach a signed statement to your return that explains that your spouse is serving in a combat zone.

If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney. Attach the power of attorney to your tax return.

If you are filing a joint return as the surviving spouse, see Death of Taxpayer on page 6.

Child's Return. If your child cannot sign the return, sign your child's name in the space provided. Then, add "By (your signature), parent for minor child."

Occupation. Write your occupation in the space provided. If married and filing a joint return, also write your spouse's occupation in the space provided.

Step 11

Did you have someone else prepare your return?

If you fill in your own return, the Paid Preparer's space should remain blank. If someone prepares your return and does not charge you, that person should not sign your return.

Generally, anyone who is paid to prepare your tax return must sign your return and fill in the other blanks in the Paid Preparer's Information area of your return. The preparer may furnish his or her alternative identifying number for income tax return preparers (PTIN) instead of his or her social security number.

If you have questions about whether a preparer is required to sign your return, please contact our Taxpayer Services staff.

The preparer required to sign your return MUST complete the required preparer information and:

Sign it, by hand, in the space provided for the preparer's signature. (Signature stamps or labels are not acceptable.)
Give you a copy of your return in addition to the copy to be filed with the Department of Taxation.

Step 12

Attachments

Attach a copy of your Form(s) HW-2, N-2, and N-4, or federal Form(s) W-2 and 1099-G (unemployment compensation), to the front of Form N-15 in the area designated. To the back of your return attach, in the following order:

Schedule CR.
Any other schedules, in alphabetical order.
Other Hawaii – series forms, in numerical order.
Any other federal forms, in numerical order, used as a substitute for state forms (see Related Federal/Hawaii Tax Forms on page 3).
A copy of your federal income tax return.
Any other required attachments.

A return without the required schedules, forms, and attachments is incomplete. You must file a complete return on time to avoid paying penalties and interest for late filing.

If you need more space on forms or schedules, attach separate sheets and use the same arrangement as the printed forms. But show your totals on the printed forms. Please use sheets that are the same size as the forms and schedules. Be sure to put your name and social security number on these separate sheets.

If you owe tax, be sure to use Form N-200V to send your payment to the Department of Taxation. Attach your check or money order and Form N-200V to the front of Form N-15.

Reminders

Processing of Your Tax Return

In general, refunds due to you are issued within 8 weeks from the date your return is filed with the Department of Taxation. However, it may take additional time if you filed your return close to the April 20 filing deadline, if errors were made in completing your return, or you moved and did not change your address in writing with the Department of Taxation.

You may call our Taxpayer Services Branch to obtain automated information about your individual income tax refunds 24 hours a day, 7 days a week. Automated refund information should be available 4 to 6 weeks after your return is filed with the Department of Taxation.

You may also check your refund status through the Department of Taxation's website.

Penalties and Interest

Late Filing of Return. The penalty for failure to file a return on time is assessed on the tax due at a rate of 5% per month, or part of a month, up to a maximum of 25%.

Extensions. If you are unable to file your Hawaii tax return by April 20, 2009, you are automatically granted a 6-month extension without the need to file anything with the Department unless an additional tax payment must be made. As long as the following conditions are met, you are deemed to have made an application for the 6-month extension to file an income tax return on the prescribed due date:

On or before April 20, 2009, 100% of the properly estimated tax liability is paid;
The tax return is filed on or before the expiration of the 6-month extension period;
The tax return is accompanied by full payment of any tax not already paid; and
You are not bound by a court order to file a tax return on or before the prescribed due date.

If you must make an additional payment of tax on or before April 20, 2009 in order to meet the condition requiring payment of 100% of the properly estimated tax liability, you must file Form N-101A with your payment. Federal Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, may not be used in lieu of Form N-101A.

Interest. Interest at the rate of 2/3 of 1% per month or part of a month shall be assessed on unpaid taxes and penalties beginning with the first calendar day after the date prescribed for payment, whether or not that first calendar day falls on a Saturday, Sunday, or legal holiday.

Failure to pay tax after filing timely returns. The penalty for failure to pay the tax after filing a timely return is 20% of the tax unpaid within 60 days of the prescribed due date. The 60-day period is calculated beginning with the prescribed due date even if the prescribed due date falls on a Saturday, Sunday, or legal holiday.

Underpayment of estimated taxes. You may be subject to a penalty for not paying enough estimated tax if your tax payments, including withholding, do not total the smallest of:

60% of the 2008 tax liability; or
100% of the tax shown on the 2007 return.

There are special rules for farmers and fishermen.

For more information, see Form N-210, Underpayment of Estimated Tax by Individuals and Fiduciaries.

Change of Address

If your mailing address changes after you file your return, you must notify the Department in writing of the change in addition to notifying the post office serving your former address. Failure to do so may prevent any refund due to you from being delivered (the U.S. Postal Service is not permitted to forward your State refund check), and delay important notices or correspondence to you regarding your return. Be sure to include your name(s) and social security number(s) as printed on your return in any correspondence with the Department.

How Long Should Records Be Kept?

Keep records of income, deductions, and credits shown on your tax return, as well as any worksheets you used, until the statute of limitations runs out for that return. Usually this is three years from the date the return was due or filed, whichever is later. Also keep copies of your filed tax returns and any Forms W-2 or 1099 you received as part of your records. You should keep some records longer. For example, property records (including those on your home) should be kept as long as they are needed to figure the basis of the original or replacement property. For more details, see federal Publication 552, Recordkeeping for Individuals.

Amended Return

If you file your income tax return and later become aware of any changes you must make to income, deductions, or credits, you may file an amended return on Form N-15 to change the Form N-15 you already filed. Use the Form N-15 for the year you are amending. (You cannot file a 2007 amended return on a 2008 Form N-15.) Fill in the amended return oval at the top of Form N-15, and fill in the return with all of the correct information. Attach a statement to the amended return explaining the changes to income, deductions, and credits.

See the instructions for Form N-15, lines 66 and 67. For information on the statute of limitation periods within which you may file an amended return to claim a refund or credit of overpaid taxes, see the instructions for line 63a (Refund) on page 31. You can get prior year forms from our website, by calling our Forms and Publications by Mail request line, and at any district tax office. See page 6 for the phone number to request the forms you need and for the Department's website address. You may not file an amended return on Form N-188X, Amended Individual Income Tax Return, to amend a Form N-15. Also, you cannot file an amended return on Form N-188X if you filed an original return on Form N-11 or Form N-13 and later find out you should have filed Form N-15. You must file an amended return on Form N-15.

Change in Federal Taxable Income

In general, a change to your federal return, whether it is made by you (on federal Form 1040X) or by the Internal Revenue Service, must be reported to the State of Hawaii.

Section 235-101(b), HRS, requires a report (an amended return) to the Director of Taxation if the amount of IRC taxable income is changed, corrected, adjusted or recomputed as stated in (3).
This report must be made:
- Within 90 days after a change, correction, adjustment or recomputation is finally determined.
- Within 90 days after an amended return is filed.
A report within the time set out in (2) is required if:
- The amount of taxable income as returned to the United States is changed, corrected, or adjusted by an officer of the United States or other competent authority.
- A change in taxable income results from a renegotiation of a contract

Hawaii Tax Help Links