Missouri Subtractions

Article ID: 33786  

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Missouri Subtractions

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Line 7 — Interest on Exempt Federa l Obligations
Interest from direct obligations of the U.S. Government, such as U.S. savings bonds, U.S. treasury bills, bonds, and notes is exempt from state taxation under the laws of the United States. Attach a detailed list or all Federal Forms 1099. Taxpayers who claim exclusion for interest from direct U.S. obligations must identify the specific securities owned, e.g., “U.S. savings bond”. A general description such as “interest on U.S. obligation” or “U.S. Government securities” is not acceptable. (See Regulation 12 CSR 10-2.150 for the taxability of various U.S. Government related obligations.) Failure to identify the specific security will result in the disallowance of the deduction. A federally taxed distribution received from a mutual fund investing exclusively in direct U.S. Government obligations is exempt. If the mutual fund invests in both exempt (direct) and non-exempt (indirect) federal obligations, the deduction allowed will be the distribution received from the mutual fund attributable to the interest on the direct U.S. Government obligations, as determined by the mutual fund. Attach a copy of the year-end statement received from the mutual fund showing either the amount of money received or the percentage of funds received from direct U.S. Government obligations, or a summary statement received from the mutual fund which clearly identifies the exempt and non-exempt portions of the U.S. Government obligation interest. The statement does not need to list each obligation separately. Failure to attach
the requested document will result in the disallowance of the deduction. To arrive at the amount of related expenses, you may use actual expenses or a reasonable estimate. In general, you should use the same or similar method used to compute related expenses for federal income tax purposes, provided that the method reasonably reflects related expenses for Missouri-exempt income. If you fail to compute reasonable related expenses, the Director of Revenue will make an adjustment based on the best information available. If sufficient information is not available or if your records do not
provide sufficient information, the Director of Revenue will use the following formula to compute related expenses: Exempt income x Expense = Reduction to Total Income Items Exempt Income The principal expense item in this formula is interest expense; however, the Director of Revenue may include other expense items because of their direct relationship to the production of exempt income. You may propose an alternative method provided that it properly reflects the amount of related expenses.

Line 8 — State Income Tax Refund
Enter the amount of any state income tax refund included in your federal adjusted gross income on Form MO-1040, Line 1 (from Federal Form 1040, Line 10). Attach a copy of Federal Form 1040 (pages 1 and 2).

Line 9 — Par tnership, Fiduciar y, S Corpora tion, Railroad Retirement Benefits, Other Enter subtractions, reported from partnerships, fiduciaries, and S corporations. The partnership, fiduciary, and S corporation must notify you of the amount of any such subtraction to which you are entitled. Check the boxes applicable on Line 9 and attach a copy of the notification received. Failure to attach a copy
of the notification furnished to you will result in the disallowance of the subtraction. Railroad Retirement Benefits Administered by the Railroad Retirement
Board, such as all Tier I and Tier II benefits and any railroad retirement sick pay, disability, and unemployment benefits, included in federal adjusted gross income (Form MO-1040, Line 1), are exempt from state taxation. Enter any such benefits received on Line 9. If you have other subtractions, indicate the
source on Line 9. Other subtractions include:

1. Contributions into a Missouri Individual Medical Account (IMA). Contributions that were made by your employer into an Individual Medical Account (IMA)
and used to pay your health care expenses are exempt from Missouri income tax. The interest income earned on the IMA account is also exempt from Missouri income tax. The IMA contribution is identified in Box 14 of your Form W-2, Wage and Tax Statement. Reduce the amount of contributions
by the amount of medical and dental expenses deducted on Federal Form 1040, Schedule A, Line 4, but paid for by the IMA and included in Missouri itemized deductions.

2. Additional Capital Gain Deduction Due to Difference in Basis. If during the taxable year you realized a gain from the sale of property or other capital assets that had a higher tax basis for Missouri tax purposes than for federal tax purposes, you may exclude the gain or the difference in the basis of the property so disposed, whichever is smaller. If the gain was considered a long-term capital gain for federal income tax purposes, the exclusion is limited to the gain or 50 percent of the difference, whichever is smaller. No difference in basis can be claimed for any property obtained after December 31, 1972. If your basis for Missouri purposes is less than the basis for federal income tax purposes, no adjustment is required.

3. Accumulation Distribution. If during the taxable year, you received a distribution as beneficiary of a trust that was made from accumulated earnings of prior years and you filed Federal Form 4970, the amount of the distribution may be excluded from Missouri income to the extent that it was reported in your federal adjusted gross income.

4. Capital Gain Exclusion on Sale of Low Income Housing. If during the taxable year, you sold a federally subsidized (HUD) low income housing project to a nonprofit or governmental organization, and at least 40 percent of the units are occupied by persons or families having incomes of 60 percent or less of the median income, you may exclude 25 percent of the capital gain from Missouri tax. However, the buyer
of the property must agree to preserve or increase the low income occupancy of the project. To use this exclusion, enter 25 percent of the capital gain reported on your Federal Form 1040. Attach a copy of your Federal Form 1040 (pages 1 and 2)
and Federal Form 4797.

5. Family Development Account. A family development account holder may subtract the amount of annual deposits made to the account (not to exceed $2,000). Approved withdrawals from the family development account are also exempt from state tax. Interest earned by a family development
account is exempt from state taxation and may be subtracted from an account holder’s federal adjusted gross income. Any money withdrawn for an unapproved use is subject to tax. Attach proper certification and a copy of your Form 1099.

6. Federally Taxable - Missouri Exempt Obligations. Income from any bond issued by the Missouri Higher Education Loan Authority (MOHELA), including interest or proceeds resulting from the sale of the bond, is exempt from Missouri tax. Enter the amount of such income included in federal adjusted gross income on Line 9.

7. Military Income of Nonresident Military Personnel. Enter the amount of any military income received by nonresident military personnel stationed
in Missouri. Nonresident active duty military servicemembers who are required to file a Missouri return may subtract the military income received from their federal adjusted gross income. Non-resident servicemembers’ spouses who are in Missouri due to military orders, and have declared another state as their state of residence may subtract their income from their federal adjusted gross income. Attach a copy of the Form W-2 reporting your military income.

8. Build America Bonds and Recovery ZoneBonds Interest. Enter any interest received from Build America or Recovery Zone Bonds that is included
in your federal adjusted gross income. Attach a copy of your Form 1099-INT or any other applicable documentation. 9. Combat Pay Included in Federal
Adjusted Gross Income Earned by Military Personnel with a Missouri Home of Record. The IRS allows enlisted members, warrant officers and commissioned warrant officers to exclude their military pay received while serving in a combat zone, or while hospitalized as a result of injuries incurred while serving in a combat zone. The exclusion of combat pay received by a commissioned officer, other than a commissioned warrant officer, is limited to the highest rate of enlisted pay. Subtract all military income received while serving in a combat zone, which is included in Federal Adjusted Gross Income (FAGI) and is
not otherwise excluded. In most cases combat pay is not included in Box 1, Wages, of Form W-2 and therefore is not included in FAGI. However if Box 1 includes combat pay, the portion consisting of combat pay may be taken as a subtraction for Missouri purposes.
EXAMPLE 1: A resident of Missouri, is an enlisted member of the military. He enters a combat zone in July and is there through December. He earns
$12,000 January through June, and earns $20,000 July through December. Box 1 of his Form W-2 should only indicate the $12,000 he received prior
to entering the combat zone. He is not entitled to a subtraction, as his combat pay is not included in his FAGI.

EXAMPLE 2: A resident of Missouri, is a high-ranking commissioned officer. He enters a combat zone in July and is there through December. He earns
$50,000 January through June, and earns $70,000 July through December. The IRS limits his exclusion to $40,000, causing Box 1 of his Form W-2 to
indicate $80,000. He is entitled to a subtraction of $30,000, which represents the portion of Box 1 of Form W-2 attributable to combat pay that is
included in his FAGI.

10. Net Operating Loss. Any amount of net operating loss taken against federal taxable income but disallowed for Missouri income tax purposes after June
18, 2002, may be carried forward and taken against any income on the Missouri income tax return for a period of up to 20 years from the year of the initial loss. Attach Federal Form 1045, Schedule A and B, and the calculation of your net operating loss carryback/carryforward.

11. Missouri Public-Private Transportation Act. Enter any income received in connection with the Missouri Public- Private Transportation Act, that is included
in your federal adjusted gross income.

12. Condemnation of Property. If you included in your Federal Adjusted Gross Income any gain arising from compulsory or involuntary conversion of
property as a result of condemnation or the imminence thereof, you may exclude that gain from Missouri tax Attach a copy of your Federal Form 1040,
Schedule D, and Federal Form 4797.

Line 10 — Exempt Contributions Made to a Qualified 529 Plan The state of Missouri allows a subtraction from federal adjusted gross income for the
amount of annual contributions made to the Missouri Savings for Tuition Program (MOST), the 529 plan administered by the Missouri Higher Education Deposit Program, or any other qualified 529 plan.


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