(a) The following items are to be added to
federal adjusted gross income in computing the Connecticut adjusted gross
income of a resident individual:
(1) Interest
income on obligations issued by or on behalf of any state or of a political
subdivision, or public instrumentality, state or local authority, district or
similar public entity of any such state, and interest income on obligations
issued by or on behalf of the District of Columbia, to the extent not properly
includible in federal adjusted gross income. However, interest income on
Connecticut obligations is not to be added to federal adjusted gross income.
Furthermore, interest income on obligations issued by or on behalf of any
territory or possession of the United States (such as Puerto Rico, Guam and the
Virgin Islands), or a political subdivision or public instrumentality,
authority, district or similar public entity thereof, the taxation of which by
any state is prohibited by federal law, is not to be added to federal adjusted
gross income.
Example: Interest income received by a resident individual on
bonds issued by or on behalf of the State of California and the District of
Columbia shall be added to her federal adjusted gross income in arriving at her
Connecticut adjusted gross income, as this interest income is subject to
Connecticut income tax but not to federal income tax. However, interest income
received by such individual on bonds issued by or on behalf of Guam and the
State of Connecticut is not to be added to federal adjusted gross income, as
this interest income is not subject to Connecticut income tax.
(2) Any exempt-interest dividends,
as defined in section 852(b)(5) of the Internal Revenue Code. However,
exempt-interest dividends derived from Connecticut obligations are not to be
added to federal adjusted gross income. Furthermore, exempt-interest dividends
derived from obligations issued by or on behalf of any territory or possession
of the United States (such as Puerto Rico, Guam and the Virgin Islands), or a
political subdivision or public instrumentality, authority, district or similar
public entity thereof, the direct taxation of which by any state is prohibited
by federal law, are not to be added to federal adjusted gross income.
Example: A resident individual receives $1000 in
exempt-interest dividends from a mutual fund that owns governmental obligations
issued by various states, including Connecticut, and by the Territory of Guam.
If 45% of the exempt-interest dividends was derived from Connecticut
obligations, 20% from New York obligations, 10% from Massachusetts obligations
and 25% from Guam obligations, then the amount that is to be added to federal
adjusted gross income is $300 (that is, the percentage of exempt-interest
dividends that is not derived from Connecticut obligations and other
obligations, the direct taxation of which by any state is prohibited by federal
law). The percentage of exempt-interest dividends derived from Connecticut
obligations and Guam obligations is not to be added to federal adjusted gross
income.
(3) Interest or
dividend income on obligations or securities issued by or on behalf of any
authority, commission or instrumentality of the United States, which the laws
of the United States exempt from federal income tax but not from state income
taxes.
(4) To the extent includible
in gross income for federal income tax purposes for the taxable year, the total
taxable amount of a lump sum distribution deductible from such gross income in
calculating federal adjusted gross income pursuant to section 402(d)(3) of the
Internal Revenue Code.
(5)
(A) To the extent properly includible in
determining the net gain or loss from sales or other dispositions of capital
assets for federal income tax purposes, any loss from the sale or exchange of
Connecticut obligations, in the taxable year such loss was recognized, whether
or not, for federal income tax purposes, gains from sales or other dispositions
of capital assets exceed losses therefrom.
(B) Example 1: A resident individual has, for
federal income tax purposes, a long-term capital loss of $4,000 arising from
the sale of Connecticut obligations and a long-term capital loss of $3,000
arising from the sale of bonds issued by the State of Florida. Accordingly, the
individual's federal adjusted gross income shall be increased by $4,000, the
amount of loss arising from the sale of the Connecticut obligations even though
this amount exceeds the losses allowable under section 1211(b) of the Internal
Revenue Code.
Example 2: Resident individuals who file a joint Connecticut
income tax return have, for federal income tax purposes, a long-term capital
gain of $5,000 arising from the sale of stock and a long-term capital loss of
$2,000 arising from the sale of Connecticut obligations. Any loss from the sale
or exchange of Connecticut obligations is required to be added to federal
adjusted gross income, to the extent properly includible in determining the net
gain or loss from sales or other dispositions of capital assets for federal
income tax purposes, in the taxable year such loss was recognized, even if, for
federal income tax purposes, gains from sales or other dispositions of capital
assets exceed losses therefrom. Accordingly, the federal adjusted gross income
of these individuals shall be increased by $2,000, the amount of loss derived
from the sale or exchange of the Connecticut obligations.
(6) To the extent deductible in
determining federal adjusted gross income, the amount of Connecticut income tax
paid or accrued. However, to the extent deductible from federal adjusted gross
income in determining federal taxable income, the amount of Connecticut income
tax is not to be added back to federal adjusted gross income.
(7)
(A)
Interest expenses on indebtedness incurred or continued to purchase or carry
obligations or securities, the income from which is exempt from Connecticut
income tax, to the extent such expenses are deductible in determining federal
adjusted gross income. However, to the extent such expenses are deductible from
federal adjusted gross income in determining federal taxable income, the amount
of such expenses is not to be added back to federal adjusted gross
income.
(B) Example: A resident
individual is a partner in a partnership that borrows money to purchase United
States savings bonds, the income from which is exempt from Connecticut income
tax. The partner's share of the interest expense paid during the taxable year
on this indebtedness is $200. To the extent that such expense is deductible by
the partner in determining her federal adjusted gross income, she shall add
this amount back in computing her Connecticut adjusted gross income.
(8)
(A) Expenses paid or incurred during the
taxable year for (i) the production or collection of income which is exempt
from Connecticut income tax or (ii) the management, conservation or maintenance
of property held for the production of income which is exempt from Connecticut
income tax or (iii) the amortizable bond premium for the taxable year on any
bond, the interest income from which is exempt from Connecticut income tax, but
only to the extent that such expenses and premiums are deductible in
determining federal adjusted gross income. To the extent such expenses and
premiums are not deductible in determining federal adjusted gross income but
are deductible from federal adjusted gross income in determining federal
taxable income, these expenses and premiums are not to be added back to federal
adjusted gross income.
(B) Example:
A nonresident individual is a partner in a Connecticut partnership that
purchases shares in a mutual fund that invests solely in United States
government obligations. The income therefrom is fully taxable for federal
income tax purposes. The partner's share of expenses paid during the taxable
year to produce this income is $100. To the extent that such expenses are
deductible by the partner in determining his federal adjusted gross income, he
shall add this amount back in computing his Connecticut adjusted gross
income.
(9) With respect
to an individual who is a shareholder of an S corporation carrying on business
in Connecticut (as the term is used in Section
12-214
of the general statutes, and as defined in Section
12-214-1
), the amount of such individual's pro rata share of the corporation's
nonseparately computed loss (as defined in Section
12-701(b)-1 of Part
XIV), to the extent such loss is included in computing such individual's
federal adjusted gross income, multiplied by the corporation's apportionment
fraction, if any, as determined under Section
12-218
of the general statutes (irrespective of whether the S corporation shall pay
the additional tax under Section
12-219
of the general statutes).
(b) While this section pertains to Section
12-701(a)(20)
of the general statutes, for purposes of supplementary interpretation, as the
phrase is used in Section
12-2
of the general statutes, the adoption of this section is authorized by Section
12-740(a)
of the general statutes.
