Connecticut Administrative Code › Title 12 - Taxation › 740(a) - INCOME TAX › Part I - Resident individuals › Section 12-701(a)(20)-2 - Modifications increasing federal adjusted gross income

Current through July 10, 2024
(a) The following items are to be added to
				federal adjusted gross income in computing the Connecticut adjusted gross
				income of a resident individual:
(1) Interest
				income on obligations issued by or on behalf of any state or of a political
				subdivision, or public instrumentality, state or local authority, district or
				similar public entity of any such state, and interest income on obligations
				issued by or on behalf of the District of Columbia, to the extent not properly
				includible in federal adjusted gross income. However, interest income on
				Connecticut obligations is not to be added to federal adjusted gross income.
				Furthermore, interest income on obligations issued by or on behalf of any
				territory or possession of the United States (such as Puerto Rico, Guam and the
				Virgin Islands), or a political subdivision or public instrumentality,
				authority, district or similar public entity thereof, the taxation of which by
				any state is prohibited by federal law, is not to be added to federal adjusted
				gross income.
Example: Interest income received by a resident individual on
				  bonds issued by or on behalf of the State of California and the District of
				  Columbia shall be added to her federal adjusted gross income in arriving at her
				  Connecticut adjusted gross income, as this interest income is subject to
				  Connecticut income tax but not to federal income tax. However, interest income
				  received by such individual on bonds issued by or on behalf of Guam and the
				  State of Connecticut is not to be added to federal adjusted gross income, as
				  this interest income is not subject to Connecticut income tax.
(2) Any exempt-interest dividends,
				as defined in section 852(b)(5) of the Internal Revenue Code. However,
				exempt-interest dividends derived from Connecticut obligations are not to be
				added to federal adjusted gross income. Furthermore, exempt-interest dividends
				derived from obligations issued by or on behalf of any territory or possession
				of the United States (such as Puerto Rico, Guam and the Virgin Islands), or a
				political subdivision or public instrumentality, authority, district or similar
				public entity thereof, the direct taxation of which by any state is prohibited
				by federal law, are not to be added to federal adjusted gross income.
Example: A resident individual receives $1000 in
				  exempt-interest dividends from a mutual fund that owns governmental obligations
				  issued by various states, including Connecticut, and by the Territory of Guam.
				  If 45% of the exempt-interest dividends was derived from Connecticut
				  obligations, 20% from New York obligations, 10% from Massachusetts obligations
				  and 25% from Guam obligations, then the amount that is to be added to federal
				  adjusted gross income is $300 (that is, the percentage of exempt-interest
				  dividends that is not derived from Connecticut obligations and other
				  obligations, the direct taxation of which by any state is prohibited by federal
				  law). The percentage of exempt-interest dividends derived from Connecticut
				  obligations and Guam obligations is not to be added to federal adjusted gross
				  income.
(3) Interest or
				dividend income on obligations or securities issued by or on behalf of any
				authority, commission or instrumentality of the United States, which the laws
				of the United States exempt from federal income tax but not from state income
				taxes.
(4) To the extent includible
				in gross income for federal income tax purposes for the taxable year, the total
				taxable amount of a lump sum distribution deductible from such gross income in
				calculating federal adjusted gross income pursuant to section 402(d)(3) of the
				Internal Revenue Code.
(5)
(A) To the extent properly includible in
				determining the net gain or loss from sales or other dispositions of capital
				assets for federal income tax purposes, any loss from the sale or exchange of
				Connecticut obligations, in the taxable year such loss was recognized, whether
				or not, for federal income tax purposes, gains from sales or other dispositions
				of capital assets exceed losses therefrom.
(B) Example 1: A resident individual has, for
				federal income tax purposes, a long-term capital loss of $4,000 arising from
				the sale of Connecticut obligations and a long-term capital loss of $3,000
				arising from the sale of bonds issued by the State of Florida. Accordingly, the
				individual's federal adjusted gross income shall be increased by $4,000, the
				amount of loss arising from the sale of the Connecticut obligations even though
				this amount exceeds the losses allowable under section 1211(b) of the Internal
				Revenue Code.
Example 2: Resident individuals who file a joint Connecticut
				  income tax return have, for federal income tax purposes, a long-term capital
				  gain of $5,000 arising from the sale of stock and a long-term capital loss of
				  $2,000 arising from the sale of Connecticut obligations. Any loss from the sale
				  or exchange of Connecticut obligations is required to be added to federal
				  adjusted gross income, to the extent properly includible in determining the net
				  gain or loss from sales or other dispositions of capital assets for federal
				  income tax purposes, in the taxable year such loss was recognized, even if, for
				  federal income tax purposes, gains from sales or other dispositions of capital
				  assets exceed losses therefrom. Accordingly, the federal adjusted gross income
				  of these individuals shall be increased by $2,000, the amount of loss derived
				  from the sale or exchange of the Connecticut obligations.
(6) To the extent deductible in
				determining federal adjusted gross income, the amount of Connecticut income tax
				paid or accrued. However, to the extent deductible from federal adjusted gross
				income in determining federal taxable income, the amount of Connecticut income
				tax is not to be added back to federal adjusted gross income.
(7)
(A)
				Interest expenses on indebtedness incurred or continued to purchase or carry
				obligations or securities, the income from which is exempt from Connecticut
				income tax, to the extent such expenses are deductible in determining federal
				adjusted gross income. However, to the extent such expenses are deductible from
				federal adjusted gross income in determining federal taxable income, the amount
				of such expenses is not to be added back to federal adjusted gross
				income.
(B) Example: A resident
				individual is a partner in a partnership that borrows money to purchase United
				States savings bonds, the income from which is exempt from Connecticut income
				tax. The partner's share of the interest expense paid during the taxable year
				on this indebtedness is $200. To the extent that such expense is deductible by
				the partner in determining her federal adjusted gross income, she shall add
				this amount back in computing her Connecticut adjusted gross income.
(8)
(A) Expenses paid or incurred during the
				taxable year for (i) the production or collection of income which is exempt
				from Connecticut income tax or (ii) the management, conservation or maintenance
				of property held for the production of income which is exempt from Connecticut
				income tax or (iii) the amortizable bond premium for the taxable year on any
				bond, the interest income from which is exempt from Connecticut income tax, but
				only to the extent that such expenses and premiums are deductible in
				determining federal adjusted gross income. To the extent such expenses and
				premiums are not deductible in determining federal adjusted gross income but
				are deductible from federal adjusted gross income in determining federal
				taxable income, these expenses and premiums are not to be added back to federal
				adjusted gross income.
(B) Example:
				A nonresident individual is a partner in a Connecticut partnership that
				purchases shares in a mutual fund that invests solely in United States
				government obligations. The income therefrom is fully taxable for federal
				income tax purposes. The partner's share of expenses paid during the taxable
				year to produce this income is $100. To the extent that such expenses are
				deductible by the partner in determining his federal adjusted gross income, he
				shall add this amount back in computing his Connecticut adjusted gross
				income.
(9) With respect
				to an individual who is a shareholder of an S corporation carrying on business
				in Connecticut (as the term is used in Section
				12-214
				of the general statutes, and as defined in Section
				12-214-1
				), the amount of such individual's pro rata share of the corporation's
				nonseparately computed loss (as defined in Section
				12-701(b)-1 of Part
				XIV), to the extent such loss is included in computing such individual's
				federal adjusted gross income, multiplied by the corporation's apportionment
				fraction, if any, as determined under Section
				12-218
				of the general statutes (irrespective of whether the S corporation shall pay
				the additional tax under Section
				12-219
				of the general statutes).