Indiana Form IT-40 Schedule 1 - Add-Backs Instructions

Some amounts reported on your federal tax return may require different treatment for Indiana income tax purposes. Listed in this area are those items that may need to be added back on your Indiana tax return. Please review the list carefully. When reporting these add- backs, maintain with your records the corresponding federal tax forms and schedules as the Department can require you to provide them at a later date.

Line 1 - Tax add-back

If you did not complete Federal Schedules C, C-EZ, E, or F, which include sole proprietorship income, farm income, rental, partnership, S corporation, and trust and estate income (or loss), then do not complete this line.

On those schedules you are allowed to claim a deduction for taxes paid which are:

  • based on, or
  • measured by income, and
  • levied at a state level by any state in the United States.

If you claimed this kind of deduction on any of these schedules, then you must add it back to your Indiana income.

Do not add back property taxes on this line.

Note. Income, losses and/or expenses from other schedules and forms may flow through to federal Schedules C, E and F. For example, partnership income from federal Schedule K-1 (Form 1065) may be included on federal Schedule E, while expenses from federal Form 8829 may be included on federal Schedule C. Make sure to check these schedules and forms for any deduction that needs to be added back.

Line 2 - Net operating loss add-back

Any net operating loss (NOL) deduction taken on line 21 of your federal Form 1040 must be added back on this line. Write the amount of the net operating loss as a positive figure. (You will claim an Indiana net operating loss deduction on Schedule 2, under line 11.)

Note. If your federal adjusted gross income this year is a loss, and you have not included a net operating loss as a deduction on line 21 of your 2010 federal Form 1040, then leave this line blank.

Line 3 - Lump sum distribution

If you completed federal Form 4972, add any capital gains reported on Part II and any ordinary income reported on Part III of federal Form 4972. Enter the total here as a positive amount.

Line 4 - Domestic production activities add-back

If you claimed a domestic production activities deduction on your federal Form 1040, line 35, enter that amount here.

Line 5 - Bonus depreciation add-back

You must make an exception for any bonus depreciation deduction used for property placed in service after Sept. 11, 2001. Bonus depreciation is the additional first-year special depreciation deduction allowed under Section 168(k) of the Internal Revenue Code (IRC).

Figure the net income (or loss) which would have been included in federal adjusted gross income had the bonus depreciation method not been used. Then, enter the difference, which may be a positive or negative amount, on line 5.

Example. Mack used the bonus depreciation method for federal income tax purposes. After refiguring the depreciation without using the bonus method, he has to add back $1,500 on his Indiana tax return.

Note. After making an initial adjustment for bonus depreciation you'll need to refigure the amount of depreciation available for state tax purposes for subsequent years.

Example. Ann made an initial adjustment for bonus depreciation on last year's Indiana tax return. This year she figures she is entitled to a $150 additional depreciation amount for state tax purposes. She should enter that amount as a negative entry, or (150), on line 5.

For additional information see Commissioner's Directive #19 at www.in.gov/dor/3617.htm

Line 6 - Section 179 expense add-back

You may have figured an IRC Section 179 expense using a ceiling of more than $25,000 for federal tax purposes. Indiana allows you to figure IRC Section 179 expense using a ceiling of no more than $25,000. If you figured IRC Section 179 expense using a ceiling amount of more than $25,000, you'll need to add back the difference between it and $25,000 on line 6.

Line 7 - Unemployment compensation add-back

Important. At the time this publication was finalized it was not known whether or not the unemployment compensation exemption was going to be continued for federal income tax filing purposes. Regardless, go ahead and complete this line if you received unemployment compensation during 2010.

If the federal unemployment compensation deduction was extended for 2010, then up to the first $2,400 of unemployment compensation not included on your federal tax return must be added back. The add-back for married filing jointly may be as much as $4,800.

Enter in Box A the amount of unemployment compensation from Box 1 of Form 1099G (see Exception). If you have more than one Form 1099G on which unemployment compensation is reported, add together the amounts shown on all the Form 1099G's, Box 1. Note - if you received an overpayment of unemployment compensation in 2010 and you repaid any of it in 2010, reduce the amount to be reported in Box A by the amount repaid. However, if you repaid unemployment compensation that you included in gross income in an earlier year, make no adjustment to the amount included in Box A.

Enter in Box B the unemployment compensation reported on your Form 1040, line 19; Form 1040A, line 13; or Form 1040EZ, line 3.

Make sure to enclose Form 1099G when filing.

Example. Zachary drew $3,500 in unemployment compensation. He entered in Box A the $3,500 amount from his Form 1099G, Box 1. He entered the $1,100 amount from his Form 1040A, line 13, in Box B. He entered the $2,400 difference on line 7. Note - if the federal unemployment compensation exemption was not extended for 2010, Zachary would enter $3,500 in Box B, and he would leave line 7 blank as there would be no amount to be added back.

Exception: Benefits issued by the Railroad Retirement Board. Do not include in Box A any amount from a Form 1099G issued by the Railroad Retirement Board. Also, do not enter in Box B any portion of the unemployment compensation reported on your Form 1040, line 19; Form 1040A, line 13; or Form 1040EZ, line 3, that was issued by the Railroad Retirement Board. Instead, see the instructions for the Railroad unemployment and sickness benefits deduction on page 21 for more information.

Line 8 - Other Add-Backs

Each of the following add-backs has been assigned a three-digit code number. When reporting the add-back, write its name, the associated three-digit number and the amount.

Example. Enter the following information on line 8a to report a $700 qualified disaster assistance property add-back.

8a.

Qualified disaster assistance property code no. 110 $700

Deferral of business indebtedness discharge and reacquisition add-back 107

Add an amount equal to any income not included as a result of the deferral of income arising from business indebtedness discharged in connection with the reacquisition of a debt instrument (as provided in Section 108(i) of the IRC). Subtract the amount added to income in a previous year to offset the amount included in federal gross income as a result of the deferral of income arising from business indebtedness discharged in connection with the reacquisition after Dec. 31, 2008, and before Jan. 1, 2011, of an applicable debt instrument.

Enter code 107 on Schedule 1 under line 8 if reporting this add-back.

Discharge of debt of a principal residence add-back 117

You may have to add back some or all of the amount of debt not reported on your federal tax return due to the discharge of indebtedness of your principal residence (mortgage forgiveness).

The amount of discharge of indebtedness of your principal residence to be added back can be found on:

  • Form 1099-C (or its equivalent), Box 2, and/or
  • On federal Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). If Part 1 Line 1e is checked on Form 982, then the amount on Part 1 Line 2 from the discharge of qualified principal residence indebtedness must be added back.

Note. No add back is required if the discharge of indebtedness of your principal residence was included in a bankruptcy.

Maintain with your records both federal Form 1099C and Form 982 as the Department can require you to provide this information at a later date.

Enter code 117 on Schedule 1 under line 8 if reporting this add-back.

Other (current year conformity) add-back 120

Before this publication was finalized Indiana had not conformed to any changes to the Internal Revenue Code (IRC) that may have become law after January 1, 2010. Therefore, the IRC used to figure Indiana income may not be the same as the IRC used to figure federal income.

This add-back is specific to these annual current year conformity issues. If uncertainty exists as to whether or not Indiana will adopt some or all of the federal legislation passed during 2010 that acts to reduce federal AGI, you may add-back those items as an “other” add- back. In the event those items are adopted, an amended return should be filed to recoup the add-back(s).

All entries marked as “other” must be reported as a positive amount on the original tax return. Negative entries will not be allowed.

This add-back is only for current year conformity issues. Conformity issues for preceding tax years must be addressed on the add-back line specific to the item in question. For instance, an add-back for the qualified refinery property was first added-back on the 2009 Schedule 1, line 12. The adjustment going forward should be reported on the 2010 Schedule 1, line 8, using the 3-digit code 111.

If the state legislature does not conform to federal code changes enacted after January 1, 2010, you may have to amend your return at a later date to reflect any differences between Indiana and federal law. You may wish to periodically check the Department's homepage at www.in.gov/dor/index.htm for updates.

Enter code 120 on Schedule 1 under line 8 if reporting this add-back.

Qualified restaurant property add-back 108

If you placed qualified restaurant property in service during the year that was classified as 15-year property under Section 168(e)(3)(E)(v) of the IRC, add the amount necessary to make your adjusted gross income (AGI) equal to the amount of AGI that would have been computed had the classification not applied to the property in the year that it was placed in service.

Enter code 108 on Schedule 1 under line 8 if reporting this add-back.

Qualified retail improvement property add-back 109

If you placed qualified retail improvement property in service during the year that was classified as 15-year property under Section 168(e) (3)(E)(ix) of the IRC, add the amount necessary to make your adjusted gross income (AGI) equal to the amount of AGI that would have been computed had the classification not applied to the property in the year that it was placed in service.

Enter code 109 on Schedule 1 under line 8 if reporting this add-back.

Qualified disaster assistance property add-back 110

If you claimed the special allowance for qualified disaster assistance property under Section 168(n) of the IRC, add the amount necessary to make your adjusted gross income (AGI) equal to the amount of AGI that would have been computed had the special allowance not been claimed for the property.

Enter code 110 on Schedule 1 under line 8 if reporting this add-back.

Qualified refinery property add-back 111

If you made an election under Section 179C of the IRC to expense costs for qualified refinery property, add the amount necessary to make your adjusted gross income (AGI) equal to the amount of AGI that would have been computed had the election not been made for that year.

Enter code 111 on Schedule 1 under line 8 if reporting this add-back.

Qualified film or television production add-back 112

If you made an election under Section 181 of the IRC to expense costs for a qualified film or television production tax purposes, add the amount necessary to make your adjusted gross income (AGI) equal to the amount of AGI that would have been computed had the election not been made for that year.

Enter code 112 on Schedule 1 under line 8 if reporting this add-back.

Qualified preferred stock add-back 113

You may have had a loss from the sale or exchange of preferred stock in:

  • The Federal National Mortgage Association, established under the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.), or
  • The Federal Home Loan Mortgage Corporation, established under the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.).

If you treated this as an ordinary loss under Section 301 of the Emergency Economic Stabilization Act of 2008 in the current taxable year or in an earlier taxable year, add an amount equal to the amount of adjusted gross income that would have been computed had the loss not been treated as an ordinary loss.

Enter code 113 on Schedule 1 under line 8 if reporting this add-back.