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Federal tax law changes adopted by Minnesota
for tax year 2007, with exceptions
Legislation enacted March 7, 2008, adopts all of the federal tax provisions enacted after May 18, 2006*, with the exception of the federal deduction for educator expenses and the deduction for higher education tuition and fees. The bill eliminates the need for Schedule M1NC, Federal Adjustments, and requires the two federal deductions to be added back to Minnesota taxable income, beginning with tax year 2007.Because the 2007 Minnesota forms and instructions were printed before the state adopted the federal changes, some taxpayers may be required to file amended individual income tax returns.Taxpayers affected by the recent law changes include those who claimed the tuition and fees deduction or the educator expenses deduction on their federal return, and those who included Schedule M1NC, Federal Adjustments, when they filed their 2007 Minnesota Form M1, Individual Income Tax Return.Minnesota forms and schedules affected by the law changes include Schedule M1M, Income Additions and Subtractions, Schedule M1NR, Nonresidents/Part-Year Residents, Schedule M1CD, Child and Dependent Care Credit, Schedule M1ED, K-12 Education Credit, and Form M1PR, Property Tax Refund. Lines 9 and 26 of Schedule M1M and lines 10, 12 and 17 of Schedule M1NR have been updated to reflect the new law changes. The line 5 instructions for Schedule M1CD and M1ED and for Form M1PR have also been updated. Be sure to use the forms revised March 2008, which are available on the department’s website at www.taxes.state.mn.us.We are notifying tax software companies and tax preparers about these changes.If you have not yet filed your 2007 Form M1 —- Do not complete Schedule M1NC since the schedule is now obsolete.
- If you claim the federal educator expenses deduction and/or the college tuition and fees deduction on your federal return (lines 23 and 34 of federal Form 1040 or lines 16 and 19 of Form 1040A), you must add back these deductions on line 9 of Schedule M1M (Rev. 3/08). Disregard line 26 of the schedule.
- If you are a part-year resident, a nonresident, claiming the child and dependent care credit or claiming the K-12 education credit, be sure to use Schedules M1NR, M1CD and M1ED revised March 2008, which are available on our website.
If you have filed your 2007 Form M1 and included Schedule M1NC —The department will review returns that were filed with Schedule M1NC after March 7, 2008, to determine if adjustments are required based on available information. In most cases, no adjustment will be required, and no further action is needed by the taxpayer. Notices will not be sent to taxpayers whose returns were not adjusted. If adjustments are needed, the department will notify taxpayers by June 1, 2008, of the changes made. If the department determines it cannot make the adjustments, notices will be sent by June 1 instructing taxpayers on what they need to do.If you filed Form M1 with Schedule M1NC before March 7, 2008, and your Schedule M1NC included an add back for any item other than for the educator expenses or the tuition and fees deduction, you are required to file Form M1X, Amended Income Tax Return.You were originally instructed to complete Schedule M1NC if you:- claimed the tuition and fees deduction on your federal return,
- claimed the educator expenses deduction on your federal return,
- claimed an itemized deduction for mortgage insurance premiums on federal Schedule A (1040),
- are 70½ or older and made a tax-free IRA distribution to charity,
- were a participant in a qualified pension plan, made a tax deductible IRA contribution and your federal adjusted gross income is close to the federal amount at which your IRA deduction would be limited,
- claimed an IRA deduction on your federal return that is allowed federally because you used combat pay as earned income,
- are a retired public safety officer and elected to have your pension plan directly pay for health insurance premiums from your pension,
- inherited an interest in an employee-sponsored retirement plan from someone other than your spouse and rolled over the proceeds into an IRA,
- were a shareholder of an S corporation, which in 2006 or 2007 donated appreciated property to a charity, and you either sold the S corporation stock in 2007 or your loss from the S corporation was limited in 2007 for lack of basis,
- were affected by any other tax provision under the Tax Relief and Health Care Act of 2006, that does not apply to Minnesota, including the extensions for 15-year depreciation for leasehold improvements or restaurant property, and placed in service in 2007,
- donated clothing or household items to a charity, and were not allowed a federal charitable deduction because the item was not in “good, used condition,”
- donated taxidermy property to a charity, and your federal charitable deduction was limited to your direct costs of preparing, stuffing or mounting the animal,
- donated an easement on a building exterior in a historic district and were not allowed a federal charitable deduction because of the federal restrictions on these donations,
- donated food inventory to a charity in 2007 and federally deducted more than your cost basis in the inventory, or
- donated a conservation easement to a charity in 2007 and your federal deduction for the contribution exceeded 30 percent of your federal adjusted gross income,
- for federal purposes, were allowed to exclude forgiven debt on your principal residence in 2007, and the amount of forgiveness exceeds the amount you were insolvent prior to the forgiveness,
- lived in a housing coop where less than 80 percent of the square footage of the coop is used by tenant owners and you are deducting the interest and taxes the coop paid on your Schedule A, or
- are affected by any other tax provision under the federal Acts.
* The federal laws include the Heroes Earned Retirement Opportunities Act of 2006, the Pension Protection Act of 2006, the Tax Relief and Health Care Act of 2006, the tax provisions of the Small Business and Work Opportunity Act of 2007, and the Mortgage Forgiveness Debt Relief Act of 2007.
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