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Last Updated: 12/29/2016

Phase-out of Itemized Deductions Addition

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​Taxpayers who claimed itemized deductions on their federal return may have to complete line 1 of Schedule M1M, Income Additions and Subtractions, with their state return, depending on their income. The reason is that itemized deductions phase out differently for Minnesota and federal purposes.

You must complete line 1 Schedule M1M if you itemized deductions and your Federal Adjusted Gross Income (AGI) exceeded the amount listed below:

  • $92,425, if you’re married and file separate returns
  • $184,850, for all other filers.
Note: You must use the same filing status on your Minnesota income tax return as you did on your federal return. For more information, see Filing Status for Individuals.
 

Why do I have this addition?

Before 2010, itemized deduction were gradually phased out as Federal AGI increased on both state and federal returns.  Since then, federal laws have changed relating to the phase out. 

Minnesota didn’t match these federal law changes and instead uses the previous phase-out rules. As a result, taxpayers whose Federal AGI exceeds the amount listed above may have to pay state tax on part of their federal deductions.  The taxable portion is the lesser of: 

  • 3 percent of the amount by which Federal AGI exceeds the income threshold listed above; or

  • 80 percent of the amount of itemized deductions that are “otherwise allowable” (which don’t include medical and dental expenses, interest paid on investments, casualty and theft losses, or gambling losses).

 

Calculating the addition

To calculate the amount of your addition, use the worksheet for line 1 in the instructions for Schedule M1M. The table below shows one example of how the addition is calculated.
 

Example: Worksheet for Line 1 (Schedule M1M)

1. Enter the total of amounts from Schedule A, lines 4, 9, 15, 19, 20, 27 and 28 175,700​

2. Enter the total of the amounts from Schedule A lines 4, 14 and 20, plus any gambling and casualty or theft losses
     included on line 28


​0
3. Is step 2 less than step 1?​ 175,700​
NO. Stop here.  Your deductions are not limited. 
YES. Subtract step 2 from step 1.​
4. Multiply step 3 by 80% (.80)​ 140,560​
5. Enter your Federal adjusted gross income. 299,500
6. Enter $184,850 ($92,425 if married filing separately) 184,850​
7. Is step 6 less than step 5?​ 114,650
NO. Stop here.  Your deductions are not limited. 
YES. Subtract step 6 from step 5 ​
8. Multiply step 7 by 3% (.03)​ 3,465
9. Enter the smaller of step 4 or step 8​ 3,465
10. Amount from Form M1, line 2​ 15,000
11. Add step 9 and step 10​ 18,465
12. Enter the amount from step 1​ 175,700​
13. Enter amount corresponding to your filing status:​ 12,600
  • Single or Married filing separate: $6,300
  • Head of household: $9,300
  • Married filing joint and qualifying widow(er) $12,600
14. Enter the number from box 39a on form 1040 0​
15. If single or head of household, multiply step 14 by $1,550.  All others, multiply step 14 by $1,250. 0​

16. Add steps 13 and 15

12,600

17. Subtract step 16 from step 12 (if result is zero or less, your deductions are not limited.

​163,100
​18. Enter the amount from step 1 175,700​
​19. Compare the amounts on step 11 and step 17. 172,235
  • ​If step 11 is less than or equal to step 17, subtract step 9 from step 18.
  • ​If step 11 is more than step 17, subtract step 10 from step 17, then subtract the result from step 18. 
​20. Enter the amount from federal Form 1040, line 40 175,700​
21. Subtract step 19 from step 20.  This is your Minnesota itemized deduction phase-out addition 3,440​

Married couples filing separate returns: Each spouse must complete a separate Worksheet for Line 1. If either spouse is required to add back 100 percent of his/ her step 9, your addition is the lesser of:

  • your step 9;
  • or the difference between your step 1 and your step 10.