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Category: Minnesota

Minnesota Subtractions from Income

K-12 Education Expense Subtraction

If in 2016 you purchased educational material or services for your qualifying child’s K–12 education, you may be able to subtract qualified expenses from your taxable income, regardless of your income.


If your household income is less than the limits for the K–12 education credit, first complete Schedule M1ED, K–12 Education Credit, to claim the credit for your qualifying education expenses. Qualifying expenses not used for the credit and any tuition expenses that do not qualify for the credit may be used for the subtraction. You cannot claim both a credit and a subtraction on the same expenses.


To subtract your education expenses, the child must:

* be your child, adopted child, stepchild, grandchild or foster child who lived with you in the United States for more than half of the year,

* have been in grades K–12 during 2016; and

* have attended a public, private or home school in Minnesota, Iowa, North Dakota, South Dakota or Wisconsin.


In addition to the above requirements, you must have purchased educational services or required materials during the year to help your child’s K–12 education. The types of education expenses that qualify for the credit also qualify for the subtraction. However, certain expenses qualify only for the subtraction. For examples of qualifying education expenses, see Qualifying K-12 Education Expenses (Page 13).

Subtraction Limits

* The maximum subtraction allowed for purchases of personal computer hardware and educational software is $200 per family. You may split qualifying computer expenses, up to $200, among your children any way you choose.

* The maximum amount of education expenses you may subtract is $1,625 for each child in grades K through 6, and $2,500 for each child in grades 7 through 12.


Net Interest from U.S. Bonds

Interest earned on certain federal obligations are federally taxable, but exempt from Minnesota tax. Include federally taxable interest you received from U.S. bonds, bills, notes, savings bonds and certificates of indebtedness, and Sallie Mae bonds, as well as any dividends paid to you by mutual funds that are attributable to such bonds, reduced by any related investment interest and other expenses deducted on your federal return relating to this income.

Also include any net U.S. Government interest and dividends you received as a partner of a partnership, a shareholder of an S corporation or a beneficiary of a trust.

Note: Do not include interest or dividends attributable to Ginnie Mae, Fannie Mae or Freddie Mac bonds.


Reciprocity Income

Minnesota has income tax reciprocity agreements with Michigan and North Dakota. Reciprocity applies only to personal service income, which includes wages, salaries, tips, commissions, fees, and bonuses. For additional information pertaining to the reciprocity agreement with Michigan and North Dakota, please refer to page of the Form M1 Instructions.


Other Subtractions

* received benefits from the Railroad Retirement Board, such as unemployment, sick pay or retirement benefits,

* worked and lived on the Indian reservation of which you are an enrolled member,

* were insolvent and you received a gain from the sale of your farm property that is included in line 37 of Form 1040, or

* received federal active duty military pay for services performed outside Minnesota while a Minnesota resident,

* received compensation for state or federal active service performed in Minnesota as a member of the National Guard or reservists,

* received active duty military pay while a resident of another state and you are required to file a Minnesota return,

* reported 80 percent of federal section 179 expensing as an addition to income in 2011 through 2015,

* paid income taxes to a sub-national level of a foreign country (equivalent of a state of the United States) other than Canada,

* incurred certain costs when donating a human organ,

* were a resident of Michigan or  North Dakota and you received wages covered by reciprocity from which Minnesota income tax was withheld,

* were age 65 or older (as of January 1, 2015); are permanently and totally disabled and you received federally taxable disability income; and you qualify under the Schedule M1R income limits (see Schedule M1R—Income qualifications)

* reported a prior addback for reacquisition of business indebtedness income,

* received a post service education award for service in an AmeriCorps National Service program.

* Were subject to the federal itemized deduction phaseout and your itemized deductions were less than your allowable standard deduction.

* Had railroad maintenance expenses not allowed as a federal deduction

* Claimed the Minnesota subtraction allowed for the net operating loss claimed under the Worker, Home ownership, and Business Assistance Act of 2009.


For additional information pertaining to Minnesota Subtractions, please refer the Subtraction Line Instructions beginning for Line 16 of Form M1M