As tax law is very complicated, this article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advise. You should contact us with any specific questions so we can properly interpret how the tax laws applies to your situation. Killingbeck Tax Preparation, Kokomo, Indiana. 765-452-8000.
How to Save with 24 State Tax Deductions!
We have put together for you the below listing of the basic rules for tax deductible savings from some 23 Indiana State Tax Deductions. (For additional tax savings laws, please see our listing of State Tax Credits, Federal Tax Credits and Federal Tax Deductions under our Tax Preparation heading.)
The tax deductible savings you receive by claiming an Indiana State Tax Deduction depends on your tax bracket which is determined by which county you live in. For most counties the total tax rate for state and county taxes is around 5%. This means that a $3000 state tax deduction would save $150. A $5000 state tax deduction would save $250, etc. Now if your income is below your exemptions and you are in the 0% tax bracket, unfortunately the way the system is designed you won't have any tax deductible savings. Let us know if you have questions. Killingbeck Insurance, Kokomo Indiana, 765-452-8000.
Renters State Tax Deduction:
You can claim up to a $3000 tax deduction.
A. Only applies to principal place of residence which is the
taxpayer’s permanent home in Indiana.
1. It also applies to lot rent if the residence is a mobile home,
which is the taxpayer’s permanent home .
B. The property must be subject to Indiana property tax.
1. Can’t claim on government or student housing, property owned by a cooperative, or non-profit.
C. Leave address line blank if taxpayer rented at address used on front of return.
D. If moved during the year, the state wants you to list information on each location on a separate sheet.
Homeowners Property State Tax Deduction
Can Claim Up to $2500 state tax deduction
A. Only applies to principal place of residence which is taxpayer’s permanent home.
B. Leave address blank if same as front of return.
C. If more than 1 address, State wants you to tell them about all addresses.
Put both addresses in the same area and put “and” between addresses.
D. If any amount of property tax was deducted on Schedule C, E, F,
can’t take a tax deduction for that amount.
State Tax Refund Tax Deduction
With our tax software, this amount carries automatically from Federal. You
get a state deduction for the amount you had to add back on the federal
for a previous year state tax refund.
Interest on U.S. Government Obligations Tax Deduction
US Savings Bonds Interest and Treasury Bill Interest is not taxable on the Indiana return.
When we code on the interest worksheet, this tax deduction will carry
automatically on the State return.
Taxable Social Security & Railroad Retirement Deduction
Indiana does not tax this social security or railroad retirement. Can also deduct
tier 1 and tier 2 railroad retirement. With our tax software, the social security
deduction and tier 1 & 2 should carry automatically from the federal if it
is on the right lines on 1099R and SS line. Watch that you are getting a
deduction for Social Security, tier 1 and tier 2 railroad retirement.
Military Service Deduction State Tax Deduction
A. Up to $5000 tax deduction. $10,000 if both spouses in the military.
1. Surviving spouses can also claim deduction.
2. Can’t claim if only receive nontaxable combat pay.
B. Military income includes active or reserve military pay and
military retirement taxable on federal if at least age 60.
1. Code W-2 for military & will carry to the state.
2. Does not carry from 1099 R. Enter on Indiana Schedule 2.
Non-Indiana Locality Earnings State Tax Deduction
This deduction is for income subject to both Indiana State tax
and a local tax in another state. The deduction is based on the
amount of income taxed in the other locality up to $2000 single
or $4000 joint. State may send a letter asking for proof of local tax paid.
Insulation Indiana State Tax Deduction:
Up to $1000 deduction. Insulation includes weather stripping, new insulation, double pane windows, storm doors & storm windows.
For solar roof vent or fan, see Other State Tax Deductions farther below.
A. Item must be an upgrade, not a replacement.
B. Must be for a principal residence located in Indiana.
C. The part of home installed in was not built in last 3 yrs.
D. Must have been installed during the current tax year.
E. Must attach statement with details.
Unemployment State Tax Deduction:
A. Our tax program computes this automatically.
B. Unemployment is fully tax deductible on state when AGI is under $12,000 single, $18,000 joint.
C. The deduction phases out by ½ of AGI that exceeds $12,000 single or $18,000 joint.
Other State Tax Deductions:
Other deductions no longer have a specific line but are written in
under other deductions and need to have a code listed with the deduction.
A. Civil Service Annuity: $8000 tax deduction. (code 601)
1. Must be at least age 62 or surviving spouse.
2. Must be receiving federal civil service annuity.
3. The $8000 deduction is reduced by social security.
B. Disability Retirement State Tax Deduction: (code 602) Up to a $5200 deduction.
1. Must be retired on disability.
2. Must be receiving disability retirement income (under retirement age).
3. Doctor must sign form 2440 certifying disability.
4. No deduction allowed if income is over $20,200 for one spouse disabled
or $25,700 if both disabled.
C. Enterprise Zone Employees (code 603) or airport development zone (code 600)
1. Must live & work in a qualified enterprise zone and
must attach employer provided IT-40QEC.
a. In Kokomo, area is around old Continental Steel site.
2. Deduction is the lesser of ½ of earned income show on that form
or $7500 ($15,000 joint if both qualify).
D. Human Services State Tax Deduction (code 605)
is intended to alleviate the tax burden imposed on Medicaid recipients who are living in a hospital,
a nursing facility, or an intermediate care facility.
1. To qualify, the total tax on the front of the IT-40 must be more than the total credits.
2. The amount of the deduction is the total Indiana Adjusted Gross Income. Enter on Sch. 1.
3. The deduction can’t be used with any other credit
(such as unified tax credit) to create a refund.
E. Indiana State Lottery Winning State Tax Deduction: (code 606)
1. You get a deduction for the first $1200 winnings per lottery ticket won from Indiana Lottery.
Be sure to code on federal.
2. Does not apply to any other gambling.
F. Indiana Net Operating Loss State Tax Deduction: (code 607)
1. You take a deduction for Indiana portion of net operating loss that
you added back on front of IT-40.
G. Indiana Partnership Long Term Care Premiums State Tax Deduction (code 608)
1. Must be for an Indiana Partnership long term care insurance policy.
Policy has information box showing it qualifies.
2. The deduction is the amount of the premiums paid during the
year for the taxpayer and spouse.
3. If a self-employed person took a deduction on the 1040, they can’t
deduct a second time on the state.
H. Law Enforcement Reward State Tax Deduction (code 611)
is for people who receive an award for providing information to law
enforcement agency and reported it as other income on federal.
Up to a $1000 is deductible.
I. Medical Savings Account State Tax Deduction (code 612)
If taxpayer receives forms IN-MSA from employer, they should deduct any medical withdrawals
and exempt interest that was reported in Box 2 or Box 7.
Can’t claim if you also took deduction on front of 1040.
J. Recovery of Deductions Indiana State Tax Deduction (code 616)
If taxpayer had to report recovered itemized deductions as other income on federal,
can deduct those on state.
K. National Guard and Reservists who are called up for active duty. (code 621)
This deduction is for those who serve in National Guard or Reservist called up for active duty..
(This used to read due to involuntary orders.)They are allowed a state tax deduction up to the total income received
after they are called to involuntary service.
Can’t take $5000 military deduction and this deduction on same income.
Can’t take deduction on combat zone pay as it is not taxable.
L. Qualified patents state tax deductions (code 622)
Complete form IN-PAT at www.in.gov/dor/3650.htm
M. Solar power roof vent or fan State Tax Deductions (code 623)
can deduct up to ½ of costs of solar power vent or fan up to $1000
installed on owned or leased property.
Must attach statement and have proof of costs similar to insulation deduction.
N. U.S Railroad Retirement Board Unemployment and Sickness Benefits (code 624)
are not taxable on state.
O. Private School or Home School Deduction. (code 626)
$1000 deduction per child regardless of amount spent for K-12 tuition, fees, computer software, textbooks, school supplies. If school is registered, need school name and number. If not, just enter school name or home school.
Give us a call if you have questions or we can be of help, 765-452-8000. Killingbeck Insurance &Tax Preparation, Kokomo, Indiana.