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Last Updated: 3/26/2014

Differences in Income Items

​The American Taxpayer Relief Act (ATRA) extended federal provisions that exempt certain income items from taxation – some through 2013, and others permanently. View a detailed list of acts and provisions extended by ATRA.

On March 21, 2014, Gov. Mark Dayton signed a bill that conformed Minnesota law to these federal provisions for tax years 2013 and going forward.  Prior to the bill being signed, taxpayers were required to include the difference between federal and state deductions amounts on Schedule M1NC, which is no longer used. The following information lists the changes affecting income items that result from this legislation.

Note: We are updating Minnesota Individual Income Tax forms and instructions to reflect these changes for tax year 2013. We are scheduled to release the updated forms and instructions on or by April 3, 2014.

Wages

ATRA extended provisions that allow taxpayers to exclude from their income certain education assistance, adoption assistance, and transit-related benefits provided by an employer.

Education Assistance: ATRA permanently extended the exclusion of up to $5,250 per year in employer-provided educational benefits under section 127 of the Internal Revenue Code (IRC). Minnesota adopted these provisions, making such benefits exempt from state income tax.  These benefits must be included in household income when calculating Minnesota credits such as the Child and Dependent Care Credit (Schedule M1CD), K-12 Education Credit (M1ED) and Homeowners’ Homestead Credit Refund and Renter’s Property Tax Refund (M1PR).

Minnesota also continues to recognize IRC section 132(b) and (d), which exempt(s) employer provided education assistance from income if it:

  • Maintains or improves skills needed for an employee’s current job (not including education that is necessary to meet the minimum job qualifications or would qualify the employee for a new profession); or

  • Is provided to employees of educational institutions for classes they or a family member attend at the educational institution where they are employed. 

Adoption Benefits: ATRA permanently extended the exclusion from income of up to $12,970 in employer-provided adoption assistance. Minnesota adopted this extension, making such benefits exempt from Minnesota income tax.

These benefits must be included in household income when calculating Minnesota credits such as the Child and Dependent Care Credit (Schedule M1CD), K-12 Education Credit (M1ED) and Homeowners’ Homestead Credit Refund and Renter’s Property Tax Refund (M1PR).

Transit Assistance: ATRA extended, through 2013, the exclusion from income of up to $245 per month in transit benefits. Minnesota adopted this extension, making such benefits exempt from Minnesota income tax.

These benefits must be included in household income when calculating Minnesota credits such as the Child and Dependent Care Credit (Schedule M1CD), K-12 Education Credit (M1ED) and Homeowners’ Homestead Credit Refund and Renter’s Property Tax Refund (M1PR).

Discharge of Indebtedness on Principal Residence

ATRA extended, through 2013, a provision that allows taxpayers to exclude otherwise taxable discharge of mortgage debt from their income, if the discharged debt was qualified principal residence indebtedness. Minnesota adopted this provision making such discharged debt exempt from state income tax. 

This discharge must be included in household income when calculating Minnesota credits such as the Child and Dependent Care Credit (Schedule M1CD), K-12 Education Credit (M1ED) and Homeowners’ Homestead Credit Refund and Renter’s Property Tax Refund (M1PR).

Amounts Received Under Certain Scholarship Programs

ATRA permanently extended a provision that allows taxpayers to exclude from their income awards they receive from the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program. Minnesota adopted this extension, making such awards exempt from state tax. 

These awards must be included in household income when calculating Minnesota credits such as the Child and Dependent Care Credit (Schedule M1CD), K-12 Education Credit (M1ED) and Homeowners’ Homestead Credit Refund and Renter’s Property Tax Refund (M1PR).

IRA Distribution for Charitable Purposes

ATRA extended, through 2013, a provision that allows taxpayers age 70½ or older to exclude from their income up to $100,000 per year in otherwise taxable IRA distributions, if those distributions go directly to a qualified charitable organization. Minnesota has adopted this provision.

Taxpayers who exclude the distributions from their income under this provision are not permitted to deduct the contribution on Schedule A, under IRC, section 408(d)(8)(E). 

Coverdell Education Savings Accounts

ATRA permanently extended a provision that allows taxpayers to use non-taxable distributions from a Coverdell Education Savings Account for elementary and secondary education expenses. Minnesota adopted this provision.

Certain Dividends Paid to Nonresident Aliens

ATRA extended, through 2013, a provision that allows nonresident alien taxpayers to exclude from their income certain dividends they receive from a Regulated Investment Company (RIC) if the dividends are related to:

  • A loan to a 10 percent shareholder in the RIC; or

  • Any short-term capital gains from sources within the U.S. and the nonresident alien is present in the U.S. for at least 183 days

Minnesota Adopted this provision, making such dividends exempt from Minnesota taxation. 

Accelerated Depreciation for Business Property on an Indian Reservation

ATRA extended, through 2013, a provision that allows taxpayers to use a special depreciation period for qualified business property used and stored on an Indian reservation. Minnesota adopted this provision meaning business owners who claim this special depreciation period do not need to keep separate federal and Minnesota depreciation schedules. They can now use the same depreciation schedule for both federal and Minnesota returns.

Modified Depreciation for Certain Qualified Film and Television Production

ATRA extended, through 2013, a provision that allows taxpayers to expense, rather than capitalize, the cost of qualified film or television productions.  Minnesota adopted this provision.

Depreciation of Qualified Leasehold improvements, Restaurant Buildings and Improvements, and  Retail Improvements

ATRA extended, through 2013, a provision that allows a 15-year recovery period for improvements to certain leasehold, restaurant, and retail establishments, and for newly constructed restaurant buildings placed in service during the tax year.  Minnesota adopted this provision meaning business owners who claim this special depreciation period do not need to keep separate federal and Minnesota depreciation schedules since the same depreciation schedule will now support both returns.

Modified Depreciation for Motorsports Entertainment Complexes

ATRA extended a provision that allows taxpayers to depreciate, over 7 years, the cost of a motorsports entertainment complex placed in service during the tax year. Minnesota adopted this provision meaning business owners who claim this special depreciation period do not need to keep separate federal and Minnesota depreciation schedules since the same depreciation schedule will now support both returns.

Election to Expense Advanced Mine Safety Equipment M1NC

ATRA extended a provision that allows taxpayers to expense 50 percent of the cost of any qualified mine safety equipment. The remaining 50 percent of the cost is capitalized. Minnesota adopted this provision meaning business owners who claim this special depreciation do not need to keep separate federal and Minnesota depreciation schedules. They can now use the same depreciation schedule for both federal and Minnesota returns.

S-Corporation Basis Adjustment for Charitable Contributions of Appreciated Property M1NC

Shareholders in S-corporations are allowed to deduct their share of the fair market value of the business’s charitable donations of appreciated property.

ATRA extended a provision that allows these shareholders to reduce their basis in the business by the business’s adjusted basis in the property. Minnesota adopted this provision meaning taxpayers do not need to keep track of different federal and Minnesota basis.