N.Y. Comp. Codes R. & Regs. tit. 20 § 112.2

Current through Register Vol. 46, No. 45, November 2, 2024

Section 112.2 - Modifications increasing Federal adjusted gross income

Tax Law, §§ 606(g)(9), 606(l)(3), 612(b), 617-a

The following items are to be added to Federal adjusted gross income in determining the New York adjusted gross income of a resident individual:

(a) Interest income on obligations of any state, other than New York State, or of a political subdivision of any such other state (including that part of an exempt-interest dividend, as described in section 852[b][5] of the Internal Revenue Code, paid by a regulated investment company which is derived from any such obligations), unless created by compact or agreement to which New York State is a party, to the extent not properly includible in Federal adjusted gross income. (See section 612[b][1] of the Tax Law.)

Example:

Interest income received by a resident individual on bonds of the State of California must be added to such individual's Federal adjusted gross income in arriving at such individual's New York adjusted gross income, as this interest income is subject to New York State personal income tax, but not to Federal income tax.

(b) Interest or dividend income on obligations or securities 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. (See section 612[b][2] of the Tax Law.)

(c)Income taxes.

(1) General. Income taxes imposed by New York State or any other taxing jurisdiction, to the extent deductible in determining Federal adjusted gross income and not credited against Federal income tax. (See section 612[b][3] of the Tax Law.)

Example:

Where New York City unincorporated business income tax was deducted in determining Federal adjusted gross income, the amount of such tax must be added to Federal adjusted gross income, since income taxes are not deductible for New York State personal income tax purposes. Where, however, a particular tax is not deducted in determining Federal adjusted gross income but is credited against the amount of Federal income tax, no addition is necessary. For example, where the amount of foreign income tax is credited against the total Federal income tax of a taxpayer, no modification need be made for the amount of such income tax credit since it was not deducted in determining Federal adjusted gross income.

(2) Shareholders of S corporations. In the case of a shareholder of an S corporation, (i) where the election provided for in section 660 (a) of the Tax Law is in effect, with regard to the taxes imposed upon or payable by such S corporation, the term income taxes as used in paragraph (1) of this subdivision shall include the Franchise Tax on Business Corporations imposed under article 9-A of the Tax Law, regardless of the measure of such tax; (ii) where the election provided for in section 660 (a) of the Tax Law is in effect, or where such election cannot be made, such term income taxes shall not otherwise include any taxes imposed by this State or any other state of the United States, or any political subdivision of this State (e.g., the New York City General Corporation Tax under chapter 6 of title 11 of the Administrative Code of the City of New York) or any other state, or the District of Columbia imposed upon or payable by such S corporation.

(d) Interest expense on indebtedness incurred or continued to purchase or carry obligations or securities whose interest income is exempt from New York State personal income tax, to the extent that such interest expense is deductible in determining Federal adjusted gross income. (See section 612[b][4] of the Tax Law.)

Example:

A dealer in United States securities borrowed $100,000 from a bank to purchase a new issue of United States Treasury certificates for ultimate sale to such dealer's customers. In determining his Federal adjusted gross income, such dealer includes the interest income received on these certificates and deducts as a business expense the interest payable on the bank loan. However, the interest income received on the certificates is not subject to New York State personal income tax and is subtracted from Federal adjusted gross income in determining New York adjusted gross income (see section 112.3[a] of this Part). Conversely, the interest expense incurred on the bank loan used to purchase these certificates is not deductible for purposes of New York State personal income tax and must be added to Federal adjusted gross income in computing New York adjusted gross income.

(e)

(1) Expenses paid or incurred during the taxable year for:

(i) the production or collection of income which is exempt from New York State personal income tax; or

(ii) the management, conservation or maintenance of property held for the production of such income; and

(2) The amortizable bond premium for the taxable year on any bond the interest income on which is exempt from New York State personal income tax; to the extent such expenses and premiums are deductible in determining Federal adjusted gross income. Expenses, and amortizable bond premiums otherwise allowable, which are directly attributable to any class of income (either taxable or exempt for New York State personal income tax purposes) must be allocated to the class to which they relate, and if an item of expense or premium is attributable to both taxable and exempt income, a reasonable portion thereof, based on all facts and circumstances, must be allocated to each class. (See section 612[b][5] of the Tax Law.)

Example 1:

A dealer in United States and municipal securities received $20,000 of interest income on United States bonds (fully taxable for Federal income tax purposes) and $30,000 of interest income on state and local bonds, $5,000 of which represented interest income on bonds issued by the City of New York. Expenses of the taxpayer (other than interest expense) attributable to the production and collection of such interest income amounted to $7,500, consisting of $1,500 attributable to the United States bond interest income, $4,500 attributable to the state and local bond interest income, and $1,500 attributable to both types of interest income. In determining Federal adjusted gross income, the taxpayer included the interest income on the United States bonds and deducted as business expenses the collection expenses of $7,500. For New York State personal income tax purposes, the modifications based on the foregoing income and expense items which are to be made in determining New York adjusted gross income are as follows:

1. The $20,000 of interest income on United States bonds is to be subtracted from Federal adjusted gross income (see section 112.3[a] of this Part).

2. The $25,000 of interest income on state and local bonds, other than the New York City bonds, is to be added to Federal adjusted gross income (see subdivision[a] of this section).

3. In accordance with this subdivision, expenses in the amount of $3,000 attributable to income exempt from New York State personal income tax are to be added to Federal adjusted gross income. The amount of expenses allocated to such exempt income is computed in the following manner:

*Expenses allocated to Federal bond interest*	*Expenses allocated to state and local bond interest*
Direct expense	$1,500	$4,500
Indirect expense
prorated $1,500 × $20,000 $50,000 =	600
$1,500 × $30,000
$50,000 =	900
Total	$2,100	$5,400

*Apportionment of expense allocated to state and local bond interest*
Allocable to New York City bond interest:	$ 5,000 × $5,400 =	$900
$30,000
Allocable to other than New York City bond interest:	$25,000 × $5,400 =	$4,500
$30,000
Allocable to exempt income
Expense allocable to Federal bond interest as above	$2,100
Expense allocable to New York City bond interest as above	900
Total allocable to exempt bond interest	$3,000

Example 2:

An individual engaged in business as a building contractor owns United States bonds which such individual regularly posts as security in lieu of performance bonds to guarantee completion of contracts entered into in the course of such individual's business. When such bonds are purchased at a premium, it is the taxpayer's regular practice to amortize the bond premium in accordance with the provisions of the Internal Revenue Code. Under these circumstances, the amortization of bond premium is deductible in arriving at Federal adjusted gross income since it is a deduction attributable to a trade or business. Since the interest income on the bonds involved is not subject to New York State personal income tax and is subtracted from Federal adjusted gross income in determining New York adjusted gross income (see section 112.3[a] of this Part), the taxpayer is required to add to Federal adjusted gross income the amount of any deduction for amortization of bond premium reflected therein with respect to the tax-exempt United States bonds.

(f)

(1) The amounts required by sections 612 (g)(1) and (6) of the Tax Law (see section 112.7[a][1][ii] and 112.7[a][2] of this Part) to be added to Federal adjusted gross income where a taxpayer has exercised the election to claim the optional modifications for depreciation.

(2) The amount required by section 612 (h)(2)(c) of the Tax Law to be added to Federal adjusted gross income where a taxpayer has claimed, in a taxable year beginning before 1987, the optional modification for waste treatment facilities under section 612 (h) of the Tax Law.

(3) The amounts referred to in paragraphs (1) and (2) of this subdivision must be added to Federal adjusted gross income in determining New York adjusted gross income in accordance with section 612 (b)(6) of the Tax Law.

(g) [Reserved]

(h) The Federal percentage depletion allowance required to be added to Federal adjusted gross income pursuant to section 612 (i) of the Tax Law (see section 112.8 of this Part). (See section 612[b][10] of the Tax Law.)

(i)-(k) [Reserved]

(l) Where a credit for the special additional mortgage recording tax is allowed under section 606 (f)(1) or 606 (i)(1) of the Tax Law (see, respectively, sections 106.5 and 106.6 of this Title), the amount of the special additional mortgage recording tax imposed by section 253.1 -a of the Tax Law allowed as an exclusion or deduction in determining Federal adjusted gross income in such taxable year, to the extent of the amount of such credit allowed. (See section 612[b][15] of the Tax Law.)

(m) Where property with respect to which the credit for the special additional mortgage recording tax was allowed under section 606 (f) of the Tax Law (see section 106.5 of this Title) is sold or otherwise disposed of, the amount of the special additional mortgage recording tax imposed by section 253.1 -a of the Tax Law which was paid and which was reflected in the computation of the basis of such property for Federal income tax purposes so as to result in a decrease in the gain, or an increase in the loss, from such sale or other disposition. (See section 612[b][16] of the Tax Law.)

(n) The amount required to be added to Federal adjusted gross income pursuant to section 612 (r) of the Tax Law (see section 112.11 of this Part) relating to any gain realized from the sale or other disposition of property acquired from a decedent. (See section 612[b][17] of the Tax Law.)

(o)

(1) In the case of a shareholder of an S corporation:

(i) where the election to be treated as a New York S corporation under section 660 (a) of the Tax Law is in effect with respect to such corporation, an amount equal to such shareholder's pro rata share of the S corporation's reductions for taxes under section 1366(f)(2) and (3) of the Internal Revenue Code, relating to the tax imposed on recognized built-in gains and to the tax imposed on excess net passive income;

(ii) in the case of an S termination year, subparagraph (i) of this paragraph shall apply to the reductions for taxes as determined in accordance with section 612 (s) of the Tax Law (see section 112.12 of this Part).

(2) The amounts referred to in paragraph (1) of this subdivision must be added to Federal adjusted gross income in determining New York adjusted gross income in accordance with section 612 (b)(18) of the Tax Law.

(p)

(1) In the case of a shareholder of an S corporation:

(i)

(a) Where the election to be treated as a New York S corporation under section 660 (a) of the Tax Law has not been made with respect to such corporation, any item of loss or deduction of the S corporation included in Federal gross income pursuant to section 1366 of the Internal Revenue Code.

(b) Exception. A resident shareholder of an S corporation that cannot make the election provided for under section 660 (a) of the Tax Law (e.g., a foreign S corporation [i.e., an S corporation that is not incorporated in New York State] that does not do business in New York State or an S corporation that is taxed under article 9 of the Tax Law), is not required to make the modification referred to in this paragraph.

(ii) In the case of an S termination year, subparagraph (i) of this paragraph shall apply to the amounts of loss or deduction determined under section 612 (s) of the Tax Law (see section 112.12 of this Part).

(2) The amounts referred to in clause (a) of subparagraph (i) and subparagraph (ii) of paragraph (1) of this subdivision are required to be added to Federal adjusted gross income in determining New York adjusted gross income in accordance with section 612 (b)(19) of the Tax Law.

(q)

(1) S corporation distributions not included in a shareholder's Federal adjusted gross income because of the application of the following sections of the Internal Revenue Code:

(i) section 1368, relating to distributions of property made with respect to an S corporation's stock;

(ii) section 1371(e), relating to cash distributions during a post-termination transition period; and

(iii) section 1379(c), relating to transitional rules for distributions of undistributed taxable income; to the extent any of the above distributions represent income not previously subject to the New York State personal income tax because the election to be treated as a New York S corporation under section 660 (a) of the Tax Law had not been made.

(2) Any of the above distributions, which are treated as gains from the sale or exchange of property (as described under section 1368[b][2] of the Internal Revenue Code) for Federal income tax purposes, must be treated as ordinary income for New York State personal income tax purposes.

(3) Exception. A resident shareholder of an S corporation that cannot make the election provided for under section 660 (a) of the Tax Law (e.g., a foreign S corporation [i.e., an S corporation that is not incorporated in New York State] that does not do business in New York State or an S corporation that is taxed under article 9 of the Tax Law), is not required to make the modification referred to in this subdivision.

(4) The amounts referred to in paragraph (1) of this subdivision are required to be added to Federal adjusted gross income in determining New York adjusted gross income in accordance with section 612 (b)(20) of the Tax Law.

(r) The amount required to be added to Federal adjusted gross income by section 612 (n) of the Tax Law (see section 112.9 of this Part), relating to the disposition of stock or indebtedness of a corporation that has made an election under subchapter S of chapter one of the Internal Revenue Code for any taxable year of such corporation beginning after December 31, 1980, but for which the election to be treated as a New York S corporation under section 660 of the Tax Law has not been made. (See section 612[b][21] of the Tax Law.)

(s) The amount required to be added to Federal adjusted gross income under section 612 (q) of the Tax Law (see section 112.10 of this Part) relating to the sale of a reinvestment in a New York new business. (See section 612[b][22] of the Tax Law.)

(t) For taxable years beginning after December 31, 1981, except with respect to property which is a qualified mass commuting vehicle (as described in section 168[f][8][D] of the Internal Revenue Code), any amount which is claimed as a deduction in determining Federal adjusted gross income solely as a result of an election made in accordance with the provisions of section 168(f)(8) of the Internal Revenue Code as such section was in effect for safe harbor lease agreements entered into prior to January 1, 1984. (See section 612[b][23] of the Tax Law.)

(u) For taxable years beginning after December 31, 1981, except with respect to property which is a qualified mass commuting vehicle (as described in section 168[f][8][D] of the Internal Revenue Code), any amount which the taxpayer would have been required to include in Federal adjusted gross income had such taxpayer not made the election provided for in section 168(f)(8) of the Internal Revenue Code as such section was in effect for safe harbor lease agreements entered into prior to January 1, 1984. (See section 612[b] [24] of the Tax Law.)

(v) In the case of property placed in service in taxable years beginning before January 1, 1994, for taxable years beginning after December 31, 1981, except with respect to property subject to the provisions of section 280-F of the Internal Revenue Code and property subject to the provisions of section 168 of the Internal Revenue Code which is placed in service in New York State for taxable years beginning on or after January 1, 1985, the amount allowable as the accelerated cost recovery system or modified accelerated cost recovery system deduction determined under section 168 of the Internal Revenue Code. (Also, see section 112.3[u] of this Part.) (See section 612[b][25] of the Tax Law.)

(w) The amount of member or employee contributions to a retirement system or pension fund, qualifying as employer contributions under section 414(h) of the Internal Revenue Code, which are picked up or paid by an employer pursuant to section 517 (f) or section 613 (d) of the Retirement and Social Security Law, sections 13-225.1, 13-327.1, 13-125.1, 13-125.2 or 13-521.1 of the Administrative Code of the City of New York or section 2575.19 of the Education Law. This includes, but is not limited to, contributions by Tier III and Tier IV members or employees of the New York State or New York City retirement systems, including the New York State and New York City Teachers' Retirement Systems, contributions made by electing employees of the New York State Education Department, the State University of New York or the City University of New York who participate in an Optional Retirement Program authorized under the Education Law, and contributions made by New York City uniformed force members or employees to New York City retirement systems. (See section 612[b][26] of the Tax Law.)

(x) Upon the disposition of property for which accelerated cost recovery system or modified accelerated cost recovery system deductions were not allowed for New York purposes under section 612 (b)(25) of the Tax Law (see subdivision [v] of this section) and for which depreciation deductions were allowed under section 612 (c)(26) of the Tax Law (see section 112.3[u] of this Part), the amount, if any, by which the total New York depreciation deductions allowed on such property under section 612 (c)(26) of the Tax Law exceeds the total of the accelerated cost recovery system or modified accelerated cost recovery system deductions allowed on the property for which modifications were required under section 612 (b)(25) of the Tax Law. This modification is to be made in the year of disposition of the property (see section 612[b][27] of the Tax Law). For purposes of this subdivision, the term disposition has the same meaning as provided in section 106.1(i)(1)(v) of this Title. With regard to the related modification reducing Federal adjusted gross income, see section 112.3(v) of this Part.

(y) The amount of credit for solar and wind energy systems allowed under section 606 (g) of the Tax Law where the gain from the sale or other disposition of property for which such credit was claimed is included in Federal adjusted gross income and the amount of such credit resulted in a reduction in the basis of such property in accordance with section 606 (g)(9) of the Tax Law. (See section 612[b][29] of the Tax Law.)

(z)

(1) Five percent of the amount of acquisition-related interest (as defined in section 612[t][3] of the Tax Law and section 112.13 of this Part), to the extent deducted in the computation of New York adjusted gross income, without regard to this subdivision, where there has been a stock or asset acquisition, as defined in section 612 (t) of the Tax Law, (see section 112.13 of this Part) during the taxable year or within the three immediately preceding taxable years, subject to the limitation described in paragraph (2) of this subdivision.

(2) Limitation. The amount of the addback provided in paragraph (1) of this subdivision shall be limited to the product of subparagraphs (i) and (ii) of this paragraph:

(i) taxpayer's acquisition-related interest (as defined in section 612[t][3] of the Tax Law and section 112.13 of this Part) to the extent so deducted; multiplied by

(ii) a fraction:

(a) The numerator of which is the sum of:

(1) in the case of section 112.13(a)(1) of this Part, the taxpayer's, partnership's, estate's, trust's or S corporation's (acquiror's) total cost of any target corporation as described in section 208 (15) of the Tax Law (see section 1-2.12 of this Title), or corporations acquired in a corporate acquisition (as defined in section 208[15] of the Tax Law) during the acquiror's taxable year or in the three immediately preceding taxable years; and

(2) in the case of section 112.13(a)(2) of this Part, the value of the assets acquired during the acquiror's taxable year or in the three immediately preceding taxable years, but only if such acquisition took place on or after April 19, 1989.

(b) For purposes of this subparagraph, there shall be included only the cost of target corporations acquired in a taxable year with respect to which none of the conditions set forth in section 112.13(b) of this Part are satisfied and the value of assets acquired in an asset acquisition (see section 112.13[a] of this Part) taking place during such a year.

(c) The denominator of such fraction is the taxpayer's average total debt for the taxable year. (See section 612[b][30]) of the Tax Law.)

(aa) The amount deducted or deferred from an employee's salary under a flexible benefits program established by the City of New York and certain other employers, (e.g., the City University of New York, the New York City Health and Hospitals Corporation, the New York City Transit Authority, the New York City Housing Authority, the New York City Off-Track Betting Corporation, the New York City Rehabilitation Mortgage Insurance Corporation, the New York City Board of Education, the New York City School Construction Authority, the Manhattan and Bronx Surface Transit Operating Authority and the Staten Island Rapid Transit Authority) pursuant to section 125 of the Internal Revenue Code and section 23 of the General Municipal Law or section 1210-a of the Public Authorities Law. (See section 612[b][31] of the Tax Law.)

(ab)

(1) In the case of a resident individual or partner of a partnership doing an insurance business as a member of the New York Insurance Exchange, as described in section 6201 of the Insurance Law (see section 617-a of the Tax Law):

(i) any item of loss or deduction of such business which is the individual's or partner's distributive or pro rata share for Federal income tax purposes, or which the individual or partner is required to take into account separately for Federal income tax purposes; and

(ii) such individual's or partner's distributive or pro rata share of the allocated entire net income as determined by such business under sections 1503 and 1504 of article 33 of the Tax Law. However, no modification is allowable in the event such distributed or pro rata share is a loss.

(3) With regard to the related modification reducing Federal adjusted gross income, see section 112.3(z) of this Part.

(ac) The basis adjustment required by section 606 (1)(3) of the Tax Law (see section 106.9[c] of this Title) relating to the economic development zone capital corporation credit.

(ad) The amount by which an employee's salary is reduced in accordance with the provisions provided in section 12-126.1(b) of the Administrative Code of the City of New York, relating to the amount of the health insurance and welfare benefits fund surcharge of former fractional share members of the New York City Employees' Retirement System (NYCERS) or the Board of Education Retirement System of the City of New York (BERS). (See section 612[b][32] of the Tax Law.)

N.Y. Comp. Codes R. & Regs. Tit. 20 § 112.2