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Category: Arizona

Arizona Additions to Income

All income entered within your Federal return will automatically be carried to your Arizona Resident return; however, Arizona taxes certain items of income that is not taxed by the Federal government. If any of the below "Additions to Income" apply to your Arizona return, please make the necessary entries within the Arizona state program of your TaxSlayer account.

Non-Arizona Municipal Interest - Enter the amount of interest income from non-Arizona municipal bonds that you did not include as income on your federal return. You may exclude any expenses incurred to purchase or carry the obligation. Reduce the interest income by the amount of those expenses that you could not deduct on your federal return. If you received tax exempt interest from municipal bonds, attach a schedule listing the payors and the amount received from each payor. You may also want to attach supporting documents for amounts received from Arizona municipal bonds that are exempt from Arizona income tax. These may be items such as bank statements, brokerage statements, etc.

Ordinary Income Portion of Lump Sum Distributions Excluded on Your Federal Return - Use line B7 if you use federal averaging for lump-sum distributions from your pension or profit-sharing plan. Arizona law does not provide for averaging. Enter the amount of the distribution that you treated as ordinary income on your federal return. If you choose to treat the capital gain portion of the distribution as ordinary income, you must also include that amount.

Total Federal Depreciation - Enter the total amount of depreciation deducted on the federal return. If you make an entry here, you should also take a subtraction on recalculated Arizona depreciation.

Medical Savings Account (MSA) Distributions - You must add amounts received from an MSA here if any of the following apply:

  • You Withdrew Funds From Your MSA For Other Than Qualified Expenses - You must make an entry here if all of the following apply:
    • You withdrew money from your MSA during 2012.
    • You did not use the amount withdrawn to pay qualified medical expenses.
    • You did not have to include the withdrawal as income on your federal income tax return.
  • Deceased Account Holder Where the Named Beneficiary is Not the Decedent's Surviving Spouse - You must make an entry here if all of the following apply:
    • The account holder died during the year
    • You are the named beneficiary of the decedent's MSA.
    • You are not the decedent's surviving spouse.
    • You did not have to include the value of the MSA as income on your federal income tax return.
      • In this case, the MSA ceased to be an MSA. Enter the fair market value of the MSA as of the date of death, less the amount of MSA funds used within one year of the date of death, to pay the decedent's qualified medical expenses. You can reduce the fair market value by only those expenses paid from the MSA. If you pay additional medical expenses for the decedent from the MSA after you file, you may file an amended return to further reduce the fair market value of the MSA.
  • Decedent's Final Return and No Named MSA Beneficiary - Make an entry here if all of the following apply:
    • The account holder died during the year.
    • There is no named MSA beneficiary.
    • This is the decedent's final return.
    • The value of the MSA did not have to be included on the decedent's final federal income tax return.
      • In this case, the MSA ceases to be an MSA. Enter the fair market value of the MSA as of the date of death. This rule applies in all cases in which there is no named beneficiary, even if the surviving spouse ultimately obtains the right to the MSA assets.
    • Note: The following are not withdrawals. Do not enter any of the following: • Amounts from the MSA used to pay qualified medical expenses • A qualified return of excess contributions• A qualified rollover• The fair market value of an MSA received by a surviving spouse who was the deceased account holder's named beneficiary.

I.R.C. § 179 Expense in Excess of Allowable Amount - Enter the amount of IRC § 179 expense deducted on the federal return that exceeds $25,000. If you make an entry for this addition, you should also take a subtraction as an "Other Subtraction" for a portion of the amount entered as an addition. To determine the allowable subtraction portion, please refer to the instructions for Line C26. The subtraction would need to be entered within the "Subtractions from Income" section of the Arizona state return.

Other Additions to Income

  • Pension Adjustments
  • Married Persons Filing Separate Returns
  • Partnership Income
  • Fiduciary Adjustment
  • Net Operating Losses
  • Items Previously Deducted for Arizona Purposes
  • Claim of Right Adjustment for Amounts Repaid in 2012
  • Claim of Right Adjustment for Amounts Repaid in Prior Taxable Years
  • Addition to S Corporation Income Due to Credits Claimed
  • Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlet Expenses
  • Wage Expense for Employers of TANF Recipients
  • Motion Picture Expenses
  • Agricultural Water Conservation System Credit
  • Adjusted Basis in Property for Which You Have Claimed a Credit for Investment in Qualified Small Businesses
  • Depreciation or Amortization for a Water Conservation System
  • Nonqualified Withdrawals from 529 College Savings Plans
  • Original Issue Discount (OID) on Reacquisition of Debt Instruments
  • Early Withdrawal of Arizona, County, City, or School Retirement System Contributions

For additional information pertaining to each addition, please refer to the Arizona Form 140 instructions.