Married Persons Filing Separate Returns
If you file a separate Arizona return, you must report the following income on that return:
- one-half of the community income from all sources.
- all of your separate income.
If you and your spouse file a joint federal return but separate Arizona returns, you must make sure that each separate return reflects the correct income. If you begin your Arizona return with only the income that you earned during the year, you will have to adjust this income.
If you file separate federal returns, each of your federal returns should already reflect the correct income. Since your separate Arizona returns will begin with the federal adjusted gross income, you will not have to adjust your income. If you have to adjust your income, attach a schedule showing how you figured your adjustment.
A fiduciary uses Arizona Form 141AZ, Schedule K-1, to report to you your share of the fiduciary adjustment from the trust or estate. Line 3 of Form 141AZ, Schedule K-1, shows your share of the fiduciary adjustment from the estate or trust. If the amount reported on line 3 of your Form 141AZ, Schedule K-1, is a positive number, enter that amount as an addition. Enter the addition on line 16. If the amount reported on line 3 of your Form 141AZ, Schedule K-1, is a negative number, enter that amount as a subtraction. Enter the subtraction on line 35.
Ordinary Income Portion of Lump-Sum Distributions Excluded on Your Federal Return
Make this adjustment if you use federal averaging for lumpsum 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. For more information, see the department’s Individual Income Tax Ruling, ITR 93-5.
Items Previously Deducted for Arizona Purposes
Arizona statutes prohibit a taxpayer from deducting items more than once. If your Arizona taxable income includes items previously deducted for Arizona purposes, you must add such amounts to your Arizona gross income.
Claim of Right Adjustment for Amounts Repaid in 2018
You must make an entry here if all of the following apply:
1. During 2018, you were required to repay amounts held under a claim of right.
2. The amount required to be repaid during 2018 was more than $3,000.
3. You took a deduction for the amount repaid on your 2018 federal income tax return.
If the above apply, enter the amount deducted on your federal income tax return here. For more information on the Arizona claim of right provisions, see the department’s Individual Income Tax Procedure, ITP 95-1.
Claim of Right Adjustment for Amounts Repaid in Prior Taxable Years
You must make an entry here if all of the following apply:
1. During a year prior to 2018 you were required to repay amounts held under a claim of right.
2. You computed your tax for that prior year under Arizona's claim of right provisions.
3. A net operating loss or capital loss was established due to the repayment made in the prior year.
4. You are entitled to take that net operating loss or capital loss carryover into account when computing your 2018 Arizona taxable income.
5. The amount of the loss carryover included in your federal income is more than the amount allowed to be taken into account for Arizona purposes.
Enter the amount by which the loss carryover included in your federal adjusted gross income is more than the amount allowed for the taxable year under Arizona law.
Addition to S Corporation Income Due to Credits Claimed
Shareholders of an S corporation who claim a credit passed through from an S corporation must make an addition to income for the amount of expenses disallowed by reason of claiming the credit. An S corporation that passes the following credits through to its shareholders must notify each shareholder of his or her pro rata share of the adjustment. You must enter an amount on this line when claiming any of the following Arizona credits: x Environmental Technology Facility Credit (Form 305) x Agricultural Water Conservation System Credit (Form 312) x Pollution Control Credit (Form 315) x Credit for Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlets (Form 319) x Credit for Employment of TANF Recipients (Form 320) x Agricultural Pollution Control Equipment Credit (Form 325) x Credit for Motion Picture Production Costs (Form 334)
Solar Hot Water Heater Plumbing Stub Outs and Electric Vehicle Recharge Outlet Expenses
If you file Form 319 to claim a credit for installing solar hot water heater plumbing stub outs or electric vehicle recharge outlets in a dwelling you constructed, you cannot deduct any expenses for which you claim the credit. If you take this credit, enter the amount of such expenses that you deducted on your federal return.
Wage Expense for Employers of TANF Recipients
If you claim a credit for employing TANF recipients on Form 320, you cannot deduct any wage expense for which you claim the credit. If you take this credit, enter the amount of such expenses that you deducted on your federal return.
Adjusted Basis in Property for Which You Have Claimed a Credit for Investment in Qualified Small Businesses
If you claim a credit on Form 338 for an investment in a qualified small business, you must adjust your basis in the investment by the amount of the credit claimed. You must report this difference in basis on the Arizona return that you file for the taxable year in which you sell or otherwise dispose of the investment. If you sold or otherwise disposed of the investment during the 2018 taxable year, on line 16, include the amount by which the adjusted basis computed under the IRC with respect to that property exceeds the adjusted basis of the property computed under A.R.S. § 43-1074.02.
Nonqualified Withdrawals from 529 College Savings Plans
You must make an addition to income if both of the following apply to you:
• You received a nonqualified withdrawal from a 529 college savings plan.
• You did not include the amount of the withdrawal in your federal adjusted gross income.
The amount that you must include on line 16 is the amount withdrawn, but no more than the difference between the amount of contributions subtracted in prior years and the amount added in any prior years.
A nonqualified withdrawal is a withdrawal other than any of the following:
• A qualified withdrawal. A qualified withdrawal is a withdrawal from an account to pay the qualified higher education expenses of the designated beneficiary of the account.
• A withdrawal made as the result of the death or disability of the designated beneficiary of an account.
• A withdrawal that is made on the account of a scholarship, or the allowance or payment described in IRC § 135(d)(1)(B) or (C), and that is received by the designated beneficiary, but only to the extent of the amount of this scholarship, allowance or payment.
• A rollover or change of designated beneficiary. Original Issue Discount (OID) on Reacquisition of Debt Instrument
For federal purposes, when a taxpayer made the special election to defer discharge of indebtedness (DOI) income under IRC § 108(i) (for 2009 or 2010), the taxpayer was not allowed to take a deduction with respect to the portion of any OID that accrued with respect to that DOI income during the income deferral period. In this case, the taxpayer had to deduct the aggregate amount of the OID deductions disallowed ratably over a 5 year period, beginning with the period in which the income was includible in federal adjusted gross income. Arizona did not adopt the federal provisions requiring a taxpayer to defer the OID deduction in cases where the taxpayer federally deferred the DOI income. For Arizona purposes, you had to report the DOI income from a debt reacquisition in the year in which you reacquired the debt, and you were allowed to subtract any OID related to that DOI income in the year the OID accrued. If your federal adjusted gross income includes a deduction for any accrued OID that you have already subtracted for Arizona purposes, you must make an addition to Arizona income for the amount of deferred OID deducted on your federal return. Generally, this addition will apply to taxable years 2014 through 2018.
On line 16, include the amount of any previously deferred OID that you deducted in computing your 2017 federal adjusted gross income, to the extent that the amount was previously subtracted from Arizona gross income.
Arizona Long-Term Health Care Savings Accounts (AZLTHSA) Withdrawals
You must add amounts withdrawn from your AZLTHSA if you withdrew money for purposes other than paying for qualified long-term health care expenses.
Sole Proprietorship Loss of an Arizona Nonprofit Medical Marijuana Dispensary included in Federal Adjusted Gross Income
If you are registered as an Arizona sole proprietorship with the Arizona Department of Health Services to operate in this state as a nonprofit medical marijuana dispensary, you are required to add the amount of the loss from the dispensary that is included in the computation of your federal adjusted gross income. Include the amount of the loss on line 16.
Federal Net Operating Loss (NOL) Carryforward from Non-Arizona Sources Accrued While a Non Resident
An individual cannot include a federal NOL carryforward deduction incurred from non-Arizona sources while the taxpayer was an Arizona nonresident in the Arizona taxable income of a return filed for a taxable year in which the taxpayer is an Arizona resident.
The taxpayer must make an addition (include on line 16) to Arizona gross income on the full-year Arizona resident return for the amount of the NOL carryforward deduction included in the taxpayer’s federal adjusted gross income. For more information, see the department’s ruling, ITR 13-5, Can A Net Operating Loss Incurred as a Non-Resident Be Used to Offset Income In A Year In Which the Taxpayer Is A Resident?
Federal Capital Loss Carryforward Deduction Incurred from Non-Arizona sources prior to Arizona Residency An individual cannot include a capital loss carryforward deduction, incurred from non-Arizona sources while the taxpayer was an Arizona nonresident, in the Arizona taxable income of a return filed for a taxable year in which the taxpayer is an Arizona resident. Therefore, a capital loss incurred from non-Arizona sources while the taxpayer was an Arizona nonresident cannot be carried forward to a taxpayer's Arizona resident return when the loss carryover is reflected in the taxpayer's federal adjusted gross income.
The taxpayer must make an addition (include on line 16) to Arizona gross income on the full-year Arizona resident return for the amount of such capital loss carryforward deduction included in the computation of the taxpayer’s federal adjusted gross income. For more information, see the department’s ruling, ITR 13-6,
Other special adjustments may be necessary. You may need to make an addition for depreciation or amortization. You may also need to make an addition if you claimed certain tax credits.
Call one of the numbers listed on page 1 of these instructions if any of the following apply:
• You claimed the Environmental Technology Facility Credit. (Form 305)
• You claimed the Pollution Control Credit. (Form 315)
• You claimed the Recycling Equipment Credit. (Form 307)
• You claimed the Agricultural Pollution Control Equipment Credit. (Form 325)
• You elected to amortize the cost of a child care facility under Arizona law in effect before 1990 and you are still deducting amortization or depreciation for that facility on your federal income tax return.