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TSSN-29

Capital Gains, Dividends & Interest Income Tax
For Full-Year And Part-Year Residents

 This TSSN is obsoleted by AN 94(2) 


Connecticut full-year residents and part-year residents may be liable to pay a state tax on capital gains, dividends and interest income. The sources of these forms of income and the degree to which they are taxed are discussed in this pamphlet.

CAPITAL GAINS

Capital Gains are derived from the sale of capital assets. There are two kinds of capital gains: short-term and long-term. A short-term capital gain is from the sale of capital assets held one year or less, or 6 months or less if acquired before January 1, 1988. Both types of gains are taxed in the same manner for Connecticut tax purposes.

Taxpayers who resided in Connecticut for part of the tax year may be required to file both a part-year resident return, Form 394PY, to report capital gains, dividends and interest income received or accrued during Connecticut residency; and a nonresident return, Form 394NR, to report only those capital gains from the sale of Connecticut real property recognized while a nonresident. A part-year resident is a taxpayer who moves into or out of Connecticut during the tax year. A part-year resident is liable for tax on any capital gains, dividends and interest income realized during his/her Connecticut residency and for capital gains realized on the sale of Connecticut real property as a nonresident.

1. Q. On what capital gains must I pay tax?

A. All, with the following exceptions:

There is a once-in-a-lifetime exemption for the sale of a principal residence if the taxpayer is 65 years of age or older. The residence must have been owned and maintained as a principal residence for 5 of the 8 years preceding the sale. There is no dollar limit for this type of exemption.

The sale or exchange of agricultural animals.

The sale or exchange of notes, bonds or other obligations of the State of Connecticut or any of its political subdivisions, e.g. municipalities, or its respective agencies or instrumentalities.

A taxpayer 65 years of age or older whose Federal Adjusted Gross Income, after subtracting taxable Social Security benefits, Tier I Railroad Retirement benefits and capital gains, is less than $10,000.

A taxpayer whose Federal Adjusted Gross Income is below the amount required to file a Federal Form 1040.

2. Q. If my adjusted gross income is less than $54,000, am I exempt from the capital gains tax?

A. No. The capital gains tax is due regardless of the adjusted gross income, unless one of the exceptions listed above applies.

3. Q. Does the state allow the federal once-in-a-lifetime exclusion on the sale of a principal residence for a taxpayer 55 years of age and older?

A. Yes, to the extent allowed on your federal tax form.

4. Q. May I use a net capital loss to offset dividends and/or interest income?

A. No. The capital gains tax and the dividends and interest income tax are two separate taxes reported on the same form.


DIVIDENDS & INTEREST INCOME

Dividends are distributions of money, stock or other property made by corporations or a mutual fund to shareholders, such as dividends received through an S corporation, partnership, an estate or a trust.

Interest income received or credited to your account is taxable. Examples of this form of interest income include interest from accounts (including certificates of deposit and money market accounts) with banks, savings and loan institutions and credit unions. Interest income from non-Connecticut state and municipal bonds is also taxable.

Interest income from directly owned obligations of the United States Government is exempt. Some examples include interest on bonds, notes, bills, certificates and savings bonds offered by the U.S. Treasury. Interest from bonds or other instruments not issued by the federal government, but guaranteed by the federal government, is taxable in Connecticut.

5. Q. Are dividends received by you from mutual funds that own obligations issued by the United States Government exempt from Connecticut taxation?

A. No. The taxpayer owns shares in the fund, not obligations issued by the United States Government.

6. Q. Who must file a return?

A. A resident individual whose net capital gain exceeds $100 or,

A resident husband and wife whose combined net capital gain is in excess of $200, and who file a joint federal income tax return, and/or

A resident individual or a resident husband and wife who have dividends and interest received, accrued or credited during the taxable year if their adjusted gross income equals or exceeds $54,000.

A part-year resident whose Federal Adjusted Gross Income or Annualized Modified Connecticut Adjusted Gross income is $54,000 or more.

7. Q. What is Modified Connecticut Adjusted Gross Income for part-year residents?

A. The Modified Connecticut Adjusted Gross Income is the annualized income based upon the number of days of Connecticut residency. It is calculated by dividing the Adjusted Gross Income received while a Connecticut resident by the number of days in Connecticut. The resulting amount is then multiplied by 365.

8. Q. Who is a resident?

A. Anyone domiciled in Connecticut is generally considered to be a resident for Connecticut tax purposes. A domicile is that place which a person considers his permanent home and, if he is away, to which he intends to return. An individual can have more than one resident at a time, but only one domicile.

Even if you are not domiciled in Connecticut, you may be a resident for Connecticut tax purposes if you are a person who either lives in this state or lives elsewhere and maintains a permanent place of abode in this state and spends a total of more than 183 days of the taxable year in Connecticut.

A part-year resident is a taxpayer who moves into or out of Connecticut during the tax year.

9. Q. What are the tax rates?

A. An individual's net capital gains are taxed at the rate of 7%.

Dividends and interest income are taxed at a rate based on Connecticut Adjusted Gross Income. The rates vary from 1% to 14%. Connecticut Adjusted Gross Income is the Federal Adjusted Gross Income less any taxable portion of Social Security benefits.

The tax brackets and rates are as follows:

ADJUSTED GROSS INCOME

At Least But Less Than Rate

 

$54,000 $56,000 1%
$56,000 $58,000 2%
$58,000 $60,000 3%
$60,000 $62,000 4%
$62,000 $66,000 5%
$66,000 $70,000 6%
$70,000 $74,000 7%
$74,000 $78,000 8%
$78,000 $82,000 9%
$82,000 $86,000 10%
$86,000 $90,000 11%
$90,000 $100,000 13%
$100,000 and over 14%

If total tax due for capital gains, and/or dividends and interest income is less than $10, no return need be filed nor tax paid.

10. Q. Must I file an Estimated Capital Gains, Dividends & Interest Income Tax Return?

A. Form 394ESA must be filed if:

  • Your preceding year's tax on dividends and interest income exceeded $200; or,
  • You estimate that your dividend and interest income tax liability for the current year tax will exceed $200; or
  • Your actual capital gains tax due is $2,000 or more for the first five full months of the tax year.

Form 394ESB must be filed by February 15 if your Capital Gains, Dividends and Interest Income Tax liability is more than $2,000. A payment of 100% of the tax is due with this return.

The estimated filing requirements listed above apply to part-year resident filers.

11. Q. When filing my tax return, what other information is required?

A. The state return must be accompanied by copies of the applicable supporting schedules as filed with the Internal Revenue Services.

Part-year residents must include a copy of the other state's tax return.

12. Q. What are the penalties for late payment of the taxes?

A. The penalty for late payment is 10% of the tax due and interest of 1.25% per month or fraction of the month. For late filing when no additional tax is due, the penalty is $50.

13. Q. How do I determine my filing status?

A. If you are subject to the tax and file a single federal return, you must file a single state return. If you file a joint federal return, a joint state return must be filed. Names and Social Security Numbers must appear on the state tax return in the same way that they appear on the federal return.

14. Q. Am I allowed additional time to file my tax return?

A. Yes. A four month extension of time will be allowed, provided you file a tentative return (Form 394TA) and pay the best estimate of total tax due. The deadline is April 15 for calendar year taxpayers. You must file for a state extension even if you have filed for a federal extension.

15. Q. What happens if I make an error on my state tax return?

A. An amended tax return must be filed. Use Form 394 for full-year residents and Form 394PY for part-year residents and write "amended" on the face of the return. The amended tax return should include supporting schedules and interest computed at 1.25% per month if there is additional tax due.

16. Q. Can I prepay my Capital Gains, Dividends and Interest Income Tax?

A. Yes. An advance payment will be accepted at any time. Please use Form 394TA.

17. Q. Are children required to file a tax return?

A. Children and other dependents under 65 years of age who can be claimed as a dependent on someone's federal return and who have unearned income of $1 or more and have total income of more than $500 may be liable for the tax.

FILING DATES FOR FULL-YEAR RESIDENTS AND PART-YEAR RESIDENTS

April 15 The Capital Gains, Dividends and Interest Income Tax Return is due. (Form 394, 394PY and 394NR)
The last day to apply for an extension of time to file a Capital Gains, Dividends and Interest Income Tax Return. (Form 394TA)
June 15 The Estimated Capital Gains, Dividends and Interest Income Tax is due. (Form 394ESA)
August 15 The last day to file for an additional two month extension. (Form 394TA)
February 15 The Second Estimated Capital Gains, Dividends and Interest Income Tax Return is due. (Form 394ESB)

(Above dates do not apply to fiscal year taxpayers)

For more information see TSSN-33, "Questions and Answers for Nonresident Capital Gains Tax".

18. Q. Where can I obtain tax forms?

A. During the filing season, tax forms are available at town clerk's offices, most libraries, IRS offices and many banks or by calling the Forms Unit at our Agency at 297-5962. Tax forms are also automatically mailed to taxpayers who have filed the previous year.

Additional information may be obtained by calling 1-800-382-9463 (Connecticut callers only) or for Hartford area and out-of-state callers, (860) 297-5962.


PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.

FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.

Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web site

Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.


TSSN-29 (Rev. 11/90)