Use line 35 if any of the following special circumstances apply. Include your own schedule with your return
explaining any amounts entered here. Include your schedule with the return.
A. Fiduciary Adjustment
A fiduciary uses 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 Arizona Form 141AZ, Schedule K-1, is a negative number, enter that amount as a
subtraction. Enter the subtraction on line 35. If the amount reported on line 3 of your Arizona Form 141AZ, Schedule K-1,
is a positive number, enter that amount as an addition. Enter the addition on line 16.
B. Partnership Income
Use this adjustment if your Arizona Form 165, Schedule K-1, shows a difference between federal and state distributable
income. If the difference reported on your Arizona Form 165, Schedule K-1, is a negative number, enter that difference as
a subtraction. Enter the subtraction on line 35. If the difference reported on your Arizona Form 165,
Schedule K-1, is a positive number, enter that difference as an addition. Enter the addition on line 16.
C. Federally Taxable Arizona Municipal Interest as Evidenced by Bonds
Enter the amount of any interest income received on obligations of the State of Arizona, or any political
subdivisions of Arizona, as evidenced by bonds, and is included in your Arizona gross income. Do not enter any Arizona
municipal interest that is exempt from federal taxation and not included in your federal adjusted gross income.
D. Adoption Expenses
You may take this subtraction only in the year the final adoption order is granted. Enter the lesser of the total of the
following adoption expenses or $3,000. When figuring your subtraction, you may include expenses incurred in prior years.
The following expenses are qualified adoption expenses.
1. Unreimbursed medical and hospital costs
2. Adoption counseling
3. Legal and agency fees
4. Other nonrecurring costs of adoption If filing separately, you may take the entire subtraction, or
you may divide the subtraction with your spouse. However, the total subtraction taken by both you and your spouse
cannot exceed $3,000.
E. Qualified Wood Stove, Wood Fireplace, or Gas Fired Fireplace
Arizona law provides a subtraction for converting an existing fireplace to one of the following.
a qualified wood stove a qualified wood fireplace
a gas fired fireplace and non-optional equipment directly
related to its operation.
You may subtract up to $500 of the costs incurred for converting an existing fireplace on your property located in
Arizona. When you figure your subtraction, do not include taxes, interest, or other finance charges. A qualified wood
stove or a qualified wood fireplace is a residential wood heater that was manufactured on or after
July 1, 1990, or sold at retail on or after July 1, 1992. The residential wood heater must also meet the U.S.
Environmental Protection Agency's July 1990 particulate emissions standards.
A qualified gas fired fireplace is any device that burns natural or liquefied petroleum gas as its fuel through a
burner system that is permanently installed in the fireplace. The conversion of an existing wood burning fireplace to
noncombustible gas logs that are permanently installed in the fireplace also qualifies as a gas fired fireplace.
F. 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 2014 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 2014
Arizona taxable income.
5. The amount of the loss carryover allowed to be taken into account for Arizona purposes is more than the amount
included in your federal income. Enter the amount by which the loss carryover allowed for
the taxable year under Arizona law is more than the amount included in your federal adjusted gross income.
G. Certain Expenses Not Allowed for Federal Purposes You may subtract some expenses that you cannot deduct on
your federal return when you claim certain federal tax credits. These federal tax credits include the following.
The federal work opportunity credit
The empowerment zone employment credit
The credit for employer-paid social security taxes on employee cash tips
The Indian employment credit
If you received any of the above federal tax credits for 2014, enter the portion of wages or salaries you paid or
incurred during the taxable year equal to the amount of those federal tax credits you received.
H. Qualified State Tuition Program Distributions
If you are a beneficiary of a qualified state tuition program, you may subtract some of the amount distributed from the
program for qualified education expenses. Enter the amount of the distribution that you had to include in your
federaladjusted gross income. A qualified state tuition program is a program that meets the requirements of IRC § 529.
I. Subtraction for World War II Victims
You may subtract distributions made to you for your persecution or the persecution of your ancestors by Nazi
Germany or any other Axis regime for racial, religious or political reasons. If you are the first recipient of such
distributions, enter the amount of the distributions that you had to include in your federal adjusted gross income.
You may also subtract items of income that are attributable to, derived from, or related to assets that were stolen or
hidden from or lost to you if you were persecuted by Nazi Germany or any other Axis regime for racial, religious, or
political reasons before, during or immediately after World War II. If you are the first recipient of such income, enter
the amount of income that you had to include in your federal
adjusted gross income.
J. Installment Sale Income From Another State Taxed by the Other State in a Prior Taxable Year
You may subtract income from an installment sale if both of the following apply.
1. The income from the sale is subject to Arizona income tax in 2014; and
2. You paid income tax to another state on that income in a prior tax year.
Enter the amount of such income that you included in your Arizona gross income for 2014. Do not enter any amount that is
subject to tax by both Arizona and another state in 2014. In this case, you may be eligible for a tax credit. See Arizona
Form 309 for details.
K. Agricultural Crops Given to Arizona Charities
Arizona law allows a subtraction for qualified crop gifts made during 2014 to one or more charitable organizations.
To take this subtraction, all of the following must apply.
1. You must be engaged in the business of farming or processing agricultural crops.
2. The crop must be grown in Arizona.
3. You made your gift to a charitable organization located in Arizona that is exempt from Arizona income tax.
The subtraction is the larger of the wholesale market price or the most recent sale price for the contributed crop. The
amount of the subtraction cannot include any amount deducted pursuant to IRC § 170 with respect to crop contribution that
exceeds the cost of producing the contributed crop. To determine if your crop gift qualifies for this subtraction, see
procedure, ITP 12-1.
L. Basis Adjustment for Property Sold or Otherwise Disposed of During the Taxable Year
With respect to property that is sold or otherwise disposed of during the taxable year by a taxpayer who has complied
with the requirement to add back all depreciation with respect to that property on tax returns for all taxable years
beginning from and after December 31, 1999, enter the amount of depreciation that has been allowed pursuant to IRC § 167
(a) to the extent that the amount has not already reduced Arizona taxable income in the current or prior years. (Note:
The practical effect of this is to allow a subtraction for the difference in basis for any asset for which bonus
depreciation has been claimed on the federal return.)
M. Previously Deferred Discharge of Indebtedness (DOI)
Income Adjustment Generally, when a loan is settled for less than the amount owed, DOI income is realized by the debtor
and usually must be included in the debtor’s gross income. The amount of DOI income is generally equal to the amount of
loan forgiveness. DOI income also occurs when a debtor repurchases his or her own debt at a discount (a price lower
than the adjusted basis issue price of the debt instrument). In debt repurchase transactions, the amount of DOI income
is generally equal to the difference between the adjusted issue price and the price paid for the debt instrument.
For federal purposes, a taxpayer may have made a special election for taxable years 2009 or 2010 to include DOI
income in connection with the reacquisition of a business debt instrument, ratably over a 5 year period. A taxpayer
that made this election will generally include this income in federal adjusted gross income beginning with the 2014
taxable year. A taxpayer would have made the federal election under IRC § 108(i) as added by the American Recovery and
Reinvestment Act of 2009. Arizona did not adopt the special federal DOI income deferral provisions for
the 2009 or 2010 taxable year. For Arizona purposes, if you made the federal election to defer the inclusion of DOI
income under IRC § 108(i), you were required to add the amount of deferred DOI income to Arizona income for the
year for which you made the election. If you made the required addition to Arizona income on the
Arizona return filed for the year in which you reacquired the debt instrument (2009 or 2010), Arizona will not tax that
DOI income twice. In the year in which you include that deferred DOI income in your federal adjusted gross income,
you may take a subtraction for the amount included for that year. Usually this subtraction will apply to taxable years
2014 through 2018. On line 35, enter the amount of previouslydeferred DOI income that you included in your federal
adjusted gross income for the current taxable year to the extent that the amount was previously added to your Arizona
income.