Nebraska Tax Form 1040N Schedule I,II,III - Adjustments to Income, Credit for Tax Paid to Another State, Computation of Nebraska Tax Instructions

Nebraska Schedule I Instructions

PART A — Adjustments Increasing Federal AGI

Line 45a

Interest Income from all State and Local Bonds. Enter the amount of tax exempt interest from line 8b of Federal Form 1040. This includes state and local bond income from all states. Although this income is exempt from federal tax, it is taxable income in Nebraska. Expenses related to this income which have not been previously deducted can be deducted from line 45 only if you itemized deductions on your federal return. Interest income from a regulated investment company (including certain mutual funds) attributable to state and local obligations must also be included in line 45a.

Line 45b

Nebraska State and Local Bonds. Enter interest and dividend income included on line 45a from bonds issued by Nebraska state and local government subdivisions. Income from regulated investment companies attributable to Nebraska source bonds may be included on line 45b.

Line 45

Interest Income Received from State and Local Bonds. Enter the result of line 45a minus line 45b.

Line 46

Financial Institution Tax Credit. Only shareholders receiving a Statement of Nebraska Financial Institution Tax Credit, Form NFC, from a qualified Nebraska financial institution may claim this deduction. Enter the amount of the tax credit available to you as stated on the 2008 Form NFC. The same amount must be entered on both lines 26 and 46. A copy of Form NFC must be attached to your return.

Line 47

Long-Term Care Savings Plan Recapture. If you terminate a Nebraska Long Term Care Savings Plan for any reason other than the death of the participant or make any unqualified withdrawal, the amount previously claimed as a deduction is subject to recapture. Enter any required recapture of a previous deduction for a long-term care savings plan contribution. There is a ten percent (10%) penalty for unqualified withdrawals. The Department will bill your account for the penalty. The amount of penalty will reduce your refund or increase your balance due. You may pay this penalty now by including the penalty amount with your payment.

Line 48

College Savings Plan Recapture. If you withdraw funds or close your Nebraska College Savings Plan account for a non-qualified purpose, the amount previously claimed as a deduction is subject to recapture. A qualified rollover to a section 529 plan sponsored by a state (or entity) other than Nebraska is considered to be a cancellation which is subject to recapture. The total maximum amount of recapture is the amount previously deducted on all Nebraska returns prior to the cancellation of the college savings plan account. Enter the portion of the cancellation amount that was deducted on previous years’ Nebraska returns on this line.

Line 49

Other Adjustments Increasing Federal AGI. Report any adjustments increasing federal AGI including, but not limited to:

Federal net operating loss deduction. Enter the amount deducted as a federal net operating loss carryforward from your federal AGI. You must include this loss as an increase to AGI. A previously established Nebraska net operating loss may be deducted on line 59, Schedule I.

S Corporation and Limited Liability Company (LLC) Non-Nebraska loss. Enter the amount of loss from an S corporation or LLC that is not from Nebraska sources. You must include this loss as an increase to AGI.

Line 50

Total Adjustments Increasing Income. Add lines 45 thru 49, enter here and on line 12 of Form 1040N.

PART B — Adjustments Decreasing Federal AGI

LINE 51

State Income Tax Refund Deduction. Enter the amount shown on line 10 of your Federal Form 1040.

If this is your only adjustment decreasing or increasing income, do not file Schedule I. Instead, check the box on line 13 of Form 1040N and enter the state income tax refund amount on line 13.

LINE 52a

U.S. Government Obligations Exempt For State Purposes. Enter the amount of interest or dividend income included in federal AGI from U.S. government obligations exempt from Nebraska tax. List the type of obligation and the amount received from each on line 52a of Schedule I. Attach a schedule, if necessary, listing all the obligations for which a deduction is claimed. Capital gains from the sale of U.S. obligations are not deductible. Some exempt U.S. government obligations include:

1. U.S. government bonds, such as series EE and HH savings bonds,
2. U.S. Treasury bills,
3. U.S. government notes, and
4. U.S. government certificates.

Some obligations which cannot be deducted include those from:

1. Federal or state banks, savings and loans, or building and loan associations,
2. Federal National Mortgage Association (FNMA) or Government National Mortgage Association (GNMA),
3. Certificates of deposit, and
4. Federal or state credit unions.

For a complete list of U.S. government obligations exempt from Nebraska tax, and a list of U.S. government obligations which are not exempt, see our Web site.

LINE 52b

Government Money Market or Mutual Funds. Enter the amount of government money market or mutual fund dividends issued by regulated investment companies that are obligations of the U.S. government.

Nebraska and U.S. law provide that dividends from a regulated investment company investing directly in exempt U.S. government obligations are deductible to the extent they represent exempt U.S. government obligations. The fund must issue you a statement showing the percent of the dividend which represents exempt U.S. government obligations. You must list the name of the fund and the portion of the dividend representing exempt U.S. government obligations on line 52b

Repurchase agreements. Interest income from repurchase agreements involving U.S. government obligations is not deductible as U.S. government interest, and cannot be taken as an adjustment decreasing federal AGI on line 52. Capital gains from the sale of U.S. government obligations are not deductible.

LINE 53

Railroad Retirement Board Pension Payments. Enter any federally taxed Tier I or II retirement benefits paid by the Railroad Retirement Board (RRB). These include any dual vested benefits or supplemental annuities. Also report any unemployment or sickness insurance payments made by the RRB. Attach a copy of Forms RRB-1099 and RRB-1099-R.

LINE 54

Special Capital Gains/Extraordinary Dividends Deduction. This deduction is available only to Nebraska residents. Enter the amount of the special capital gain or extraordinary dividend. Please refer to the Special Capital Gains Election and Computation, Form 4797N, for additional information. The Form 4797N and a copy of Federal Schedule D must be attached to your Form 1040N to document your deduction.

LINE 55

Nebraska College Savings Plan. Enter the amount contributed in 2008 to the account owner’s Nebraska College Savings Plan account not to exceed the maximum contribution amount of $5,000 or $2,500 if married filing separately. The Nebraska College Savings Program (Nebraska Educational Savings Plan Trust; including, College Savings Plan of Nebraska, TD AMERITRADE 529 College Savings Plan, AIM College Savings Plan, State Farm College Savings Plan) is a section 529 Plan administered by the Nebraska State Treasurer who has contracted with Union Bank of Lincoln. Only the account owner may claim this deduction. You cannot deduct contributions made to other states’ plans on line 55.

Donations, gifts, and grants to the Nebraska educational savings plan trust for deposit to the endowment fund are, to the extent not deducted for federal income tax purposes, allowed as a subtraction from the donor’s federal AGI on line 55. You must enclose a copy of the letter of receipt from the State Treasurer’s office acknowledging the gift received.

LINE 56

Bonus Depreciation Subtraction. Use the worksheet below to compute the amount to report on line 56 of Nebraska Schedule I. For tax years 2000 through 2005 a portion of the bonus depreciation allowed on the federal income tax return was required to be added back to the Nebraska income tax return. This add-back can be deducted at the rate of 20 percent per year. For more information see our Web site.

LINE 57

Enhanced Section 179 Subtraction. Use the worksheet below to compute the amount to report on line 57 of Nebraska Schedule I. Tax year 2008 is the third year you can deduct 20 percent of the total amount previously added back in tax years 2003, 2004, and/or 2005. Shareholders and partners must attach Schedule K-1 or equivalent.

LINE 58

Nebraska Long-Term Care Savings Plan Contribution. Enter the amount contributed in 2008 to the account owner’s Nebraska Long-Term Care Savings Plan account not to exceed the maximum contribution amount of $1,000 or $2,000 if married filing jointly. The Nebraska Long-Term Care Savings Plan is administered by the Nebraska State Treasurer. Only the plan participant may claim this deduction, www.treasurer.state.ne.us/ltcsp/index.asp

Earnings generated from this savings program are also exempt and may be deducted to the extent included in federal AGI for 2008.

LINE 59

Other Adjustments Decreasing Federal AGI. Report any other adjustments decreasing federal AGI. E-filers are limited to claiming only those deductions listed below. Allowable deductions for paper filers may include, but are not limited to:

S Corporation and Limited Liability Company (LLC) Non-Nebraska Income. Enter the amount of income from an S corporation or LLC that is not from Nebraska sources. Attach Schedule K-1 received from the S corporation or LLC together with a copy of the Nebraska apportionment factor of the S corporation or LLC where appropriate. Income from partnerships, limited liability partnerships (LLP’s), and other entities cannot be deducted.

Nonresident Military Servicemember Active Duty Pay. Enter the amount of nonresident military service compensation included in the servicemember’s federal AGI. Write “Nonresident military service compensation” together with the amount being deducted on line 59. The 2008 Form W-2 issued by the armed forces to the servicemember must be attached to Form 1040N. The Form W-2 must identify the income as attributable to a state other than Nebraska in box 15. If NE is shown on the W-2, the adjustment will not be allowed. Only active duty military service compensation can be deducted on line 59.

Native American Indian Reservation Income. Native American Indians residing on a Nebraska Native American Indian reservation with income derived from sources within the boundaries of the reservation may deduct such income on line 59.

Claim of Right Repayment. Enter the amount required to be included on your federal return for a claim of right repayment.

Nebraska Net Operating Loss Carryforward. A Nebraska net operating loss from an earlier year which is available for carryforward to 2008 is deducted on line 59.

Nebraska Agricultural Revenue and Federally Taxable NIFA Bonds. Income from bonds which are subject to federal income tax but exempt from Nebraska tax by Nebraska law is deducted on line 59. List the name of the bond(s).

Nebraska Schedule II Instructions

Full-year Nebraska residents claiming a credit for income tax paid to another state, political subdivision, or the District of Columbia must complete Nebraska Schedule II. Partial-year residents must use Nebraska Schedule III.

A separate Schedule II must be completed for each state where income tax was paid. The total credits cannot exceed the Nebraska tax liability. If some income is subject to an income tax of both another state and a city in that state, complete only one Nebraska Schedule II and combine the city and state taxes paid.

A credit will not be allowed unless you attach a complete copy of the other state’s or political subdivision's return, including all schedules. If the tax is not reported on an income tax return, attach a copy of a letter or statement from the other state or political subdivision showing the income and the tax paid. For political subdivisions not requiring a return, attach the Form W-2 showing the subdivision’s tax withheld.

Nebraska law does not allow credit for taxes paid to a foreign country or its political subdivisions.

LINE 62

Refer to the Conversion Chart and enter the amount shown on the return filed with the other state as AGI, or gross income derived from sources within that state. Do not include any income from S corporations or LLCs reported on line 59 or income which is not included in federal AGI after Nebraska adjustments from lines 12 and 13, Form 1040N.

LINE 63

Calculate the ratio to at least five decimal places, and then round to four decimals. For example, if your division result is .12346, round to .1235 (12.35%). Then multiply this ratio by Nebraska tax, line 61, on Schedule II.

LINE 64

Refer to the Conversion Chart and enter the amount shown on the return filed with the other state as tax paid to that state. Do not enter the total of the other state’s tax withheld, except for a political subdivision of another state that does not require the filing of an annual income tax return.

If a husband and wife file separately in Nebraska, but jointly in another state, attach a calculation of each spouse’s share of the total tax paid to the other state. Use the net income of each spouse that is taxed by the other state in the calculation.

LINE 65

Enter the amount from line 61, 63, or 64 whichever is least. Also, enter this amount on line 20 of Form 1040N.

NOTE: When completing lines 62 and 64, refer to the Conversion Chart on our Web site.

Nebraska Schedule III Instructions

Taxpayers filing a nonresident or partial-year resident return must complete Nebraska Schedule III to calculate the tax on their income derived from or connected with Nebraska sources.

LINE 66

Income Derived from Nebraska Sources. Add all Nebraska income sources and enter the total on line 66. Be sure the list includes all sources and amounts of income and deductions, characterized as they were on the federal return. If more space is needed, please attach to Schedule III a listing of all income sources. Partial-year residents must include all items of Nebraska income for a nonresident, plus all income earned while a Nebraska resident that is not taxed by another state. This includes dividends, interest, pension income, the sale of intangibles, and wages earned outside Nebraska.

Detailed information on the types of income that must be listed and included on line 66 is shown below:

Wages, Salaries, Tips, and Commissions. List the amounts included on your federal income tax return derived from or connected with Nebraska sources. If the Forms W-2s, Forms 1099s, or other books and records do not clearly show specific Nebraska income for each item, you may apportion the income to Nebraska. The apportionment may be based either on the number of days worked in Nebraska to total days worked, or on the volume of business transacted. When income is apportioned, a detailed explanation must be attached to the return.

Dividends, Interest, and Other Passive Income. List amounts of gains or losses from the sale of stock or securities for a nonresident only if they were earned in a business carried on in Nebraska. Do not include amounts of income from U.S. obligations you listed on line 52.

Business Income. List the amount of net income or loss from a business, trade, or profession carried on in Nebraska. Multi-state businesses with taxable income in more than one state must apportion income using the same method as a corporation (corporations use a sales-only factor in Nebraska).

• Calculate the apportionment factor to a least five decimal places and round to four decimal places.
• Multiply the total business income by the calculated apportionment factor to determine the amount of income you must include on line 66.

(Refer to the Nebraska Corporation Income Tax instructions for additional information.)

Farming and Ranching Income. List the amount of net income or loss from farming and ranching operations carried on within Nebraska.

Partnership, S Corporation, LLC, Estate or Trust. List the individual’s share of the entity’s income and deductions derived from Nebraska.

Gain or Loss. List the net amount of all capital gains and losses derived in Nebraska from the sale, exchange, or involuntary conversion of real or personal tangible or intangible property.

Rent and Royalty Income. List the net amount of rent and royalty income derived from or connected with Nebraska sources.

Lottery Prizes. List all prizes awarded in a lottery game conducted pursuant to the Nebraska Lottery Act.

Net Operating Loss Carryforward. List the loss only if it resulted from Nebraska sources. Also, attach Nebraska Form NOL to your return to claim the loss.

Financial Institution Tax Credit Claimed. List this amount if the credit is claimed and reported on line 46.

LINE 67

Adjustments as applied to Nebraska Income. Refer to the charts below.

If you filed Federal Form 1040A you may claim the following adjustments on line 67:

Line 16 Educator expenses Only as it relates to educational wages reported on line 66.

Line 17 IRA deduction As a ratio of Nebraska self-employed income and wages to total self-employed income and wages.

Line 18 Student loan interest deduction As a ratio of Nebraska AGI to federal AGI after Nebraska adjustments.

Line 19 Tuition and fees deduction Based on a ratio of line 66 income to total income of the taxpayer.

If you filed Federal Form 1040 you may claim the following adjustments on line 67:

Line 23 Educator expenses Only as it relates to educational wages reported on line 66.

Line 24 Certain business expenses of reservists, performing artists and fee-basis government officials Only if directly related to Nebraska income reported on line 66.

Line 25 Health savings account deduction Based on a ratio of Nebraska AGI to federal AGI after Nebraska adjustments.

Line 26 Moving expenses Only by partial-year residents who moved into Nebraska.

Line 27 One-half of self-employment tax Only as it relates to Nebraska source income.

Line 28 Self-employed SEP, SIMPLE and qualified plans Calculated on a ratio of the payments based on Nebraska wages or self- employment income to the total wages or income for which the payments were made.

Line 29 Self-employed health insurancededuction Calculated on a ratio of the payments based on Nebraska wages or self- employment income to the total wages or income for which the payments were made.

Line 30 Penalty on early withdrawal of savings Only if directly related to Nebraska income reported on line 66.

Line 31a Alimony paid Based on a ratio of line 66 income to total income of the taxpayer.

Line 32 IRA deduction As a ratio of Nebraska self-employed income and wages to total self-employed income and wages.

Line 33 Student loan interest deduction As a ratio of Nebraska AGI to federal AGI after Nebraska adjustments.

Line 34 Tuition and fees deduction Based on a ratio of line 66 income to total income of the taxpayer.

Line 35 Domestic production activities deduction Only if directly related to Nebraska income reported on line 66.

Line 36 Other adjustments allowed federally (These do not apply to most taxpayers.) Contact the Department.

If you claimed a bonus depreciation subtraction on line 56, or an enhanced Section 179 subtraction on line 57, Nebraska Schedule I, include these amounts on line 67, Nebraska Schedule III.

LINE 69

Ratio, Nebraska’s Share of the Total Income. Use the equation to calculate a factor that represents Nebraska’s share of income to total income. Calculate the factor to at least five decimal places and then round to four decimals. For example, if the line 69 result is .12346, round to .1235 (12.35%) before computing line 74. Even if lines 5 and 66 are negative numbers, the ratio computed in line 69 cannot exceed 100 percent.

LINE 70

Tax Table Income. Enter the amount from line 14, Form 1040N.

LINE 71

Tax. Using the Nebraska Tax Table and the income shown on line 70, enter the tax amount on line 71. Also enter any tax from the Additional Tax Rate Schedule if your federal AGI is more than $159,950 ($79,975 if married filing, separately).

Partial-year residents enter your Nebraska credit for the elderly or disabled, credit for child/ dependent care expenses, Nebraska Charitable Endowment Tax credit, or credit for prior year minimum tax. See applicable instructions for lines 16, 21, 24, 25, and 32. Partial-year residents with federal AGI of $29,000 or less do not claim child care credit here. Instead, complete the line 32 worksheet on page 16 and enter the result on line 32.

Calculate the Nebraska earned income credit on lines 76 and 77.

Nonresidents are not allowed a Nebraska earned income credit, a credit for the elderly or disabled, a credit for child/dependent care expenses, or a Nebraska Charitable Endowment Tax credit. Nonresidents may enter credit for prior year minimum tax. See line 16 instructions on page 14 of this booklet. If the result is less than zero, enter zero on line 71.

LINE 72

Personal Exemption Credit. Enter your credit for personal exemption(s). ($113 multiplied by the number of exemptions shown on line 4, Form 1040N). Do not enter on line 19.

LINE 76 AND 77

Earned Income Credit. Partial-year residents may claim this credit by entering the number of qualifying children and the federal earned income credit information on line 76. The allowable credit is 10% of the federal credit multiplied by the ratio calculated on line 69. Enter result on line 77 and on line 34. To receive this credit, you must attach a copy of pages 1 and 2 of your federal return. Nonresidents may not claim the Nebraska earned income credit.