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S.F. No. 2388 - Federal Tax Conformity
 
Author: Senator Rod Skoe
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: March 18, 2014



 

This bill adopts federal changes to the Internal Revenue Code made as of December 20, 2013, for tax year 2013 and future years, for some provisions.    

Section

Provision

1

Adopts references to the federal administrative provisions made between April 14, 2011 and December 20, 2013, that are referenced in the administrative chapter in Minnesota Statutes.  Effective the day following final enactment.
 

2

Updates a cross reference in the administrative chapter for renumbering done in a later section.
 

3

Adopts changes made to federal taxable income since April 14, 2011.  Some of these federal changes apply for tax years 2012 and 2013, some for tax year 2012 and future years, and some for tax year 2013 and future years.  This section addresses these federal changes for Minnesota purposes for tax year 2013 and future years.  Minnesota conformed to most federal provisions for tax year 2012 and would conform for tax years 2013 and future years, where applicable.  The federal provisions are described below. 

Provisions enacted federally for 2012 and 2013 only and adopted for Minnesota retroactively to tax year 2013:

  • Deduction in adjusted gross income of up to $250 for classroom expenses paid by a K-12 grade educator;
  • Exclusion for discharge indebtedness income on a principal residence;
  • Itemized deduction for mortgage insurance premiums on a principal residence;
  • For taxpayers 70 ½ or older, exclusion from gross income up to $100,000 of IRA distributions made directly to charitable organizations (the amount excluded is not allowed as a charitable deduction);
  • Increased maximum exclusion for employer provided commuter vehicle or transit pass fringe benefits from $125 per month to $245 per month to obtain parity with the exclusion of fringe parking benefits;
  • Deferred recognition of active income earned by the corporation but not distributed to the shareholder extended to taxable years beginning before January 1, 2014 to U.S. shareholders with a 10% or greater interest in a controlled banking or financing corporation;
  • Allowed expensing for the first $15 million of production costs of films and television shows;
  • Allowed depreciation of leasehold improvements and qualified restaurant property, including new restaurant property and improvements to retail property over 15 years (rather than 39 years) for to property placed in service through 2013;
  • Allowed accelerated depreciation of qualified Indian reservation property for property placed in service through 2013;
  • For contributions made in taxable years beginning through 2013, extension of basis adjustment to S corporation stock when the S corporation donates appreciated property, which is equal to the tax basis of the property rather than the fair market value;
  • Allowed depreciation of certain motorsports entertainment complex property over 7 years rather than 15 or 39 years for property placed in service through 2013.
  • Allowed expensing of 50% of the cost of advanced mine safety equipment for equipment placed in service through 2013;
  • Special rule for charitable contributions of real property for conservation purposes for contributions made in tax years beginning in 2013;
  • Allowance for companies other than C corporations to take a deduction for contributions to a charity equal to the cost basis plus one-half the normal price mark-up of food inventory for contributions made through 2013;
  • Increased exclusion for gain from the sale of qualified small business stock sold by an individual from 50% to 100% for original issue C corporation stock acquired in 2013. The exclusion applies to certain stock purchased in businesses with less than $50 million of assets that is held for at least five years;
  • Preferential treatment of dividends of regulated investments companies under which dividends paid to foreign shareholders are exempt to the same extent the dividends are exempt if the income had been earned directly by the foreign shareholder;
  • Extension of the special rule limiting payments from controlled subsidiaries of exempt organizations that are subject to the unrelated business income tax to the amount in excess of allowable payments under arm’s length transactions rules, only if a binding written contract between the entities was in effect on August 17, 2006;
  • Reduction in the minimum holding period for built-in gains on sales of assets of S corporations that converted from C corporations from ten years to five years so that S corporations can sell assets held more than five years without being taxed on built-in gains; and
  • Increased section 179 expensing and phaseout threshold for tax years 2012 and 2013.  Note: Minnesota would not conform to the extension of increased section 179 amounts but would retain current law requirement that 80 percent of the expensing amount be added back in the first year and then subtract 20 percent of the add back amount each of the following five years. 

Provisions enacted federally for tax year 2013 and future years and adopted for Minnesota retroactively to tax year 2013 and for future years:

  • Increased contribution limits from $500 to $2,000 per year and allowed use of education savings accounts for elementary and secondary school expenses;
  • Increased income limits and allowance of unlimited time period for the deduction of student loan interest;
  • Exclusion from gross income for amounts paid or expenses incurred (up to $5,250 annually) by an employer in providing educational assistance to employees under an educational assistance program;
  • Exclusion from income for awards under the National Health Service Corps scholarship program and related awards for health-care professionals;
  • Exclusion for employer provided adoption assistance;
  • Increased income thresholds for the limitation on itemized deductions;
  • Increased income threshold for phaseout of personal exemptions; and
  • Increased standard deduction for married filers.

This section also removes obsolete language relating to federal conformity for tax year 2012.
 

4

Conforms Minnesota income tax to the increased federal standard deduction for married filers and the increased phaseout amounts for itemized deductions and personal exemptions.  Removes obsolete provisions.  Effective beginning in tax year 2013.  
 

5

Adopts federal changes to federal adjusted gross income (FAGI) made between April 14, 2011, and December 20, 2013 for purposes of calculating individual alternative minimum tax (AMT) and withholding.  FAGI is the starting point for calculating household income used to compute the dependent care and K-12 education credit.
 

6

Updates cross references to changes made in other sections.
 

7

Updates a cross reference in the definition of household income and clarifies the addition to household income for tuition expenses deducted at the federal level.  Strikes an obsolete provision for unemployment benefits.
 

8

Increases the income level at which the credit beings to phase out for married joint filers by $5,000 in tax years 2013 to 2017, with the $5,000 amount indexed for inflation from 2009.  The additional phaseout amount for tax year 2013 is $5,340. Increases the income level at which the credit begins to phase out for married joint filers by $3,000 in tax year 2018 and following years, with the $3,000 amount indexed for inflation from 2008. This will match the working family credit phaseout to the federal earned income tax credit phaseout.
 

9

Strikes language requiring the add back of the additional standard deduction amount for married filers, which is no longer necessary given conformity to the higher standard deduction amount. 
 

10

Updates cross references to changes made in other sections for purposes of calculating AMT.
 

11

Updates the reference to the IRC in the property tax refund chapter. 

 

 
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