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Property Tax Credit Limitation
For taxable year 2018, in order to qualify for the property tax credit, you, or your spouse if married filing jointly, must be 65 years of age or older during the taxable year, or you must have claimed at least one dependent on your federal income tax return. The maximum income tax credit for taxes paid to Connecticut municipalities remains at $200. The phase-out thresholds for all filing statuses remain at the 2017 levels.IRC § 168(k) Bonus Depreciation Modifications
The federal Tax Cuts and Jobs Act of 2017 increased the § 168(k) bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.
Addition modification: For taxable years beginning on or after January 1, 2017, in determining a taxpayer’s Connecticut Adjusted Gross Income (AGI), a taxpayer is required to add back any § 168(k) bonus depreciation amount reported for federal income tax purposes for property placed in service after September 27, 2017. This addition modification applies to the extent such amount is deducted in determining the taxpayer’s federal AGI for the taxable year.
This addition modification must be made on Form CT-1040, Schedule 1, Line 36; Form CT-1040NR/PY, Schedule 1, Line 38; or Form CT-1040X, Schedule 1, Line 36, for taxable years beginning on or after January 1, 2018.
Taxpayers who reported this deduction on their federal return for taxable year 2017, were required to file amended Connecticut income tax returns to report this amount as an addition modification. DRS published guidance in OCG-5, Office of the Commissioner Guidance Regarding the Treatment of Bonus Depreciation for Connecticut Income Tax Purposes.
Subtraction modification: Where a taxpayer reports the § 168(k) amount as an addition modification on the Connecticut income tax return, the taxpayer will be allowed, in computing his or her Connecticut AGI, to subtract from his or her federal AGI 25% of such § 168(k) amount in each of the four succeeding taxable years.
The subtraction modification is made on Form CT-1040, Schedule 1, Line 48a; Form CT-1040NR/PY, Schedule 1, Line 50a; or Form CT-1040X, Schedule 1, Line 48a.
Taxpayers who were required to amend their 2017 Connecticut income tax return to add back the § 168(k) amount are allowed to deduct 25% of that amount beginning in taxable year 2018.
See OCG-5 for additional information.
This provision affects individuals, partnerships, limited liability companies treated as partnerships for federal income tax purposes, and S corporations.
Income Tax Exemption for Teacher Pensions
For taxable years beginning on or after January 1, 2018, in determining a taxpayer’s Connecticut AGI, a taxpayer is allowed a subtraction modification of 25% of the income received from the state teacher’s retirement system.
This modification applies to the extent such income is properly included in the taxpayer’s federal AGI for the taxable year.
IRC § 179 Modifications
The federal Tax Cuts and Jobs Act of 2017, allows a taxpayer to expense the cost of any § 179 property and deduct it on their federal return in the year the property is placed in service.
Addition modification: For taxable years beginning on or after January 1, 2018, in determining a taxpayer’s Connecticut AGI, a taxpayer is required to add back 80% of the § 179 amount deducted for federal income tax purposes for the taxable year. This addition modification applies to the extent such amount is deducted in determining the taxpayer’s federal AGI for the taxable year.
This addition modification must be made on Form CT-1040, Schedule 1, Line 36a; Form CT-1040NR/PY, Schedule 1, Line 38a; or Form CT-1040X, Schedule 1, Line 36a, for taxable years beginning on or after January 1, 2018.
Where a taxpayer reports the § 179 amount as an addition modification on the Connecticut income tax return, the taxpayer will be allowed, in computing his or her Connecticut AGI, to subtract from his or her federal AGI 25% of such § 179 amount in each of the four succeeding taxable years.
This provision affects individuals, partnerships, limited liability companies treated as partnerships for federal income tax purposes, and S corporations.
Paid Preparers
If you are a paid tax preparer preparing any Connecticut personal income tax return(s), you are required to comply with certain requirements. You are also required to obtain a tax preparer permit from DRS. See Special Notice 2017(8), New Requirements for Income Tax Preparers and Facilitators of Refund Anticipation Loans or Checks, and Special Notice 2018(8), Permit Requirements for Tax Preparers and Facilitators.
Convenience of the Employer Test
For taxable years beginning on or after January 1, 2019, residents of states with a “convenience of the employer” test will be subject to similar rules for work performed for a Connecticut employer. Generally, in a state that applies this test, wages earned by a nonresident are allocated to the employer’s location unless the nonresident works from an out-of-state location due to the necessity of the employer rather than the convenience of the employee.
For example, in determining whether income earned by a New York resident individual telecommuting for a Connecticut employer will be deemed Connecticut-sourced income, Connecticut will apply the New York “convenience of the employer” test.
Similarly, Connecticut residents working from Connecticut for an employer in a state that applies the “convenience of the employer” test will be allowed a credit for taxes paid to such other state on the income deemed to be sourced from such state based on the application of the “convenience of the employer” test.
Bioscience Investment Income Subtraction Modification
For taxable years beginning on or after January 1, 2018, in determining his or her Connecticut AGI, a general partner of a qualified venture capital fund is allowed a deduction for the income generated by investments in eligible Connecticut bioscience businesses.
For purposes of this deduction, a general partner is:
- A partner of a general partnership;
- A general partner of a limited partnership that is treated as a partnership for federal income tax purposes; and
- A partner of a limited liability partnership.
It includes a member of a limited liability company that is treated as a partnership for federal income tax purposes if 1) such company is managed by managers and such member is a member-manager of such company, or 2) such company is not managed by managers.
A general partner must use Schedule CT-BIO, Bioscience Worksheet, to calculate the amount of the subtraction modification. The subtraction modification must be made on Form CT-1040, Schedule 1, Line 49; Form CT-1040NR/PY, Schedule 1, Line 51; or Form CT-1040X, Schedule 1, Line 49, and enter “Bio Science” in the space provided.
This subtraction modification applies to the extent such amount is included in determining the taxpayer’s federal AGI for the taxable year.
Penalty for Failure to Disclose Reportable Transactions
For audits of returns on or after January 1, 2018, a 75% penalty will apply for failure to disclose reportable transactions on the Connecticut return that are also required to be disclosed for federal purposes. Additionally, a six-year statute of limitations for assessment applies to returns that fail to disclose a reportable transaction.
PE Tax Credit
For taxable years beginning on or after January 1, 2018, pass-through entities (partnerships, S corporations, limited liability companies that are treated as partnerships or S corporations for federal income tax purposes) that carry on business in Connecticut or have income derived from Connecticut sources will be subject to a Connecticut pass-through entity tax (PE Tax).
If you are a partner or member of a pass-through entity required to pay the PE Tax, you will be allowed a credit (PE Tax Credit) for your share of the PE Tax imposed on the pass-through entity. The amount of the PE Tax Credit is equal to your direct and indirect pro-rata share of the PE Tax paid by the pass-through entity multiplied by 93.01%. You can use the PE Tax Credit against your Connecticut income tax liability. If your credit exceeds your Connecticut income tax liability, the excess will be considered an overpayment, and will be refunded to you without interest. If your PE Tax Credit is not sufficient to offset your Connecticut income tax liability you are required to remit the balance of your tax due.
The PE will report the amount of your credit on Schedule CT K-1, Member’s Share of Certain Connecticut Items. If you are a beneficiary of a trust or estate that is a partner or member of a pass-through entity required to pay the PE Tax, your Schedule CT-1041 K-1, Beneficiary’s Share of Certain Connecticut Items, will report the amount of the PE Tax Credit you are allowed to claim on your Connecticut income tax return. You must complete Schedule CT-PE, Pass-Through Entity Tax Credit, and include the total from Line 1 on Form CT-1040, Line 20c; Form CT-1040NR/PY, Line 22b; or Form CT-1040X, Line 22c.
If on or before December 31, 2018, you requested any of your 2018 Connecticut income tax estimated payments to be transferred (recharacterized) as 2018 PE Tax estimated payments to one or more pass-through entities of which you are a member, do not include those payments on Form CT-1040, Line 19; Form CT-1040NR/PY, Line 21; Form CT-1040X, Line 22; or Form CT-1041, Line 11.
Resident and part-year resident members are entitled to a credit for taxes paid to another jurisdiction on income from such other jurisdiction from pass-through entities subject to the Connecticut PE Tax, if the tax paid to such other jurisdiction is substantially similar to the PE Tax. To date, DRS has not identified any substantially similar taxes.