Federal changes adopted by Minnesota for tax year 2010
UPDATE MARCH 21, 2011: Legislation enacted March 21, 2011, adopts all of the federal tax provisions enacted between March 18 and December 31, 2010, that affect federal taxable income for tax year 2010, with the following exception:
- The 50 percent/100 percent federal bonus depreciation and the increased federal section 179 expensing have been adopted, but these provisions are subject to an addback of 80 percent in the first year and five-year recovery, as under current state law.
The new law eliminates the need for the 2010 Schedule M1NC, Federal Adjustments. The law also eliminates the need to add back the federal educator expenses and college tuition and fees deductions on line 9 of Schedule M1M, Income Additions and Subtractions, for tax year 2010.
Affected 2010 tax forms revised in March 2011 —
The following Minnesota 2010 forms and schedules are affected by the law changes and have been updated:
- Schedule M1M -- Lines 9, 17 and 36 have been removed since they are no longer needed.
- Schedules M1NR and M1MT -- References to the now obsolete M1M lines have been removed.
- Schedules M1CD, M1ED and M1H -- The M1NC adjustment is no longer included in the line 5 instructions.
Use the forms revised March 2011, which are available on the department website at 2010 Individual income tax forms and instructions.
Tax software companies and tax preparers have been notified about these changes.
If you have not yet filed your 2010 Form M1 —
- Do not complete Schedule M1NC. The schedule is now obsolete.
- Disregard line 9 of Schedule M1M. If you claimed the federal educator expenses deduction and/or the college tuition and fees deduction on your federal return, no additional adjustments are needed on your Minnesota return.
- Use the Schedules M1NR, M1CD, M1ED, M1H and M1MT revised March 2011 if you are:
- a part-year resident or nonresident
- claiming the child and dependend care credit, the K-12 education credit or the credit for new participants in a section 125 employer health insurance plan, and/or
- reporting alternative minimum tax.
If you have filed your 2010 Form M1 and reported an amount on Schedule M1M, line 9, and/or included M1NC —
The department will review filed returns that reported an amount on Schedule M1M, line 9, and/or included Schedule M1NC to determine if adjustments are required based on available information. When possible, the department will make needed adjustments, notify taxpayers of changes and send any additional refunds due.
Taxpayers will be notified if further action is required by them.
Beginning March 29, 2011, the department will no longer accept any electronically filed Form M1 that reports an amount on Schedule M1M, line 9, and/or with Schedule M1NC. If you filing is denied, you will be notified and instructed how to correct your Minnesota filing.
“Angel” tax credit for small business investments
Starting in 2010, qualified taxpayers are eligible for a refundable income tax credit for investing in certain small Minnesota businesses.
The credit is equal to 25 percent of any new investment in a qualified business. The maximum credit is $125,000, or $250,000 for a couple filing jointly.
Investors must be certified by the Minnesota Department of Employment and Economic Development (DEED) to qualify for the credit. DEED will issue an Angel Investment Tax Credit Certificate to the investor upon approved certification.
To claim the credit, the investor must complete Schedule M1B, Business and Investment Credits, and include Schedule M1B and a copy of the credit certificate when filing his or her Minnesota Form M1.
For more information about eligibility requirements and the certification and credit allocation process, go to the DEED website at www.PositivelyMinnesota.com/angelcredit.
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Refundable historic structure rehabilitation credit
Beginning in 2010, if you are eligible for the federal historic rehabilitation credit for improving a certified historic structure located in Minnesota, you are also eligible for the Minnesota historic rehabilitation credit.
The credit is equal to 100 percent of the federal credit and is taken in the year the project is placed in service. Unlike the federal credit, the Minnesota credit is refundable and can also be transferred. It can be taken as a credit against income, franchise or insurance premiums tax liability.
The credit is set to sunset after fiscal year 2015, although projects certified prior to that date will be allowed to claim the credit in the year in which the project is placed in service.
To qualify for the Minnesota credit, the project developer must apply for certification to the State Historic Preservation Office (SHPO) of the Minnesota Historical Society before any rehabilitation of the historic structure begins. SHPO will issue a credit certificate upon completion of the project. For more information about the application process, see the SHPO website at www.mnhs.org/shpo.
If you received a credit certificate from the SHPO, complete Schedule M1B, Business and Investment Credits, to claim the credit. Include the schedule and a copy of the credit certificate when you file your Form M1.
If you received the credit through an interest in a partnership, S corporation, estate or trust, you must include the Schedule KPI, KS or KF you received from the entity with your Form M1.
For additional information regarding the federal rehabilitation credit, see the National Park Service of the U.S. Department of the Interior website at www.nps.gov/history/hps/tps/tax/index.htm or federal Form 3468, which is available on the IRS website at www.irs.gov.
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Credit for increasing research activities expanded
The following three changes were made to the Minnesota research and development credit, beginning with tax year 2010:
- Individual partners of partnerships and shareholders of S corporations are now allowed to claim the credit against their individual income tax.
- The amount of the credit for the first $2,000,000 of qualified expenses has increased from 5 percent to 10 percent of the qualifying expenses.
- The credit is refundable.
If a partnership or S corporation paid qualified research and development expenses in Minnesota and qualifies for the increasing research activities credit, the entity will complete Schedule RD to determine the credit amount. However, the entity cannot claim the credit and must pass the credit through to its partners or shareholders. If applicable, a partnership will report the partner's distributive share of the credit on the Schedule KPI and an S corporation will report the shareholder's pro rata share of the credit on the Schedule KS.
To claim the credit, the partner or shareholder must complete Schedule M1B, Business and Investment Credits, and include Schedule M1B and Schedule KPI or KS when filing his or her Minnesota income tax return.
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Lower income motor fuels tax credit repealed
The lower income motor fuels tax credit for individuals was repealed beginning with tax year 2010. This $25 refundable income tax credit was only available for tax year 2009.
Net operating loss
Federal update: The federal American Recovery and Reinvestment Act (ARRA) of 2009 allows individuals with a 2008 NOL from an eligible small business to elect to carry back this loss for up to five years, rather than only two years. Minnesota has adopted this federal change.
The federal Worker, Homeownership & Business Assistance Act (WHBA) of 2009 extends to 2009 the NOL carryback provisions of the ARRA for small businesses (those with gross receipts of $15 million or less). This legislation also expands the carryback periods to include businesses of all sizes, but limits the election for businesses with revenue exceeding $15 million to either 2008 or 2009, not both years.
Minnesota update: Minnesota did not adopt the five-year NOL carryback provision of WHBA. Individuals choosing this federal option are limited on the Minnesota return to a carryback period of up to the two years preceding the loss. The unused portion of the loss is allowed to be carried forward for up to 20 years.
For additional information, see NOL carryover examples for 2008 and 2009.
Note: The above changes do not affect the net operating losses of C corporations. For additional information, see Net operating loss carrybacks not allowed for corporation franchise.
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