N.Y. Comp. Codes R. & Regs. tit. 20 § 138.4

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

Section 138.4 - Modifications relating to New York items not in distributable net income

Tax Law, § 638(a)(3)

(a)General.

In determining the New York taxable income of a nonresident estate or trust, there must be added or subtracted, as the case may be, the amount of any of the modifications described in paragraphs (1) through (11) of this subdivision to the extent they are attributable to income, gain, loss or deduction derived from or connected with New York State sources which are included in the Federal taxable income of the estate or trust and which are not included in distributable net income.

(1) The optional modifications for depreciation and research and development expenditures, pursuant to section 112.7 of this Title.

(2) The optional modification for waste treatment facility expenditures pursuant to section 112.8 of this Title.

(3) The modifications relating to mines, oil and gas wells and other natural deposits, pursuant to section 112.9 of this Title.

(4) The modification relating to net capital gains for the taxable year (to the extent allocable to principal) pursuant to section 112.2(i) of this Title, if any. However, no modification is required to be made to the New York taxable income of a nonresident estate or trust pursuant to the provisions of such subdivision for that portion of any net gain as described in such subdivision which:

(i) is derived from or connected with New York State sources;

(ii) has been paid or permanently set aside for New York charitable purposes by the estate or trust; and

(iii) is allowable as a deduction for charitable purposes in accordance with the provisions of section 642 of the Internal Revenue Code.

(5) The portion of any gain from the sale or other disposition of property having a higher adjusted basis for New York State income tax purposes than for Federal income tax purposes, in accordance with the provisions of section 112.3(d) of this Title.

Example:

A nonresident trust acquired a rented parcel of real property located in New York State in 1956. The basis of the property to the trust, as of the last day of the last taxable year for which article 16 of the Tax Law was effective, was $2,000 less for Federal income tax purposes than for New York State income tax purposes, as the trustee used accelerated depreciation on the Federal returns and straight-line depreciation on the New York State returns of the trust prior to 1960. The property was sold in 1985 at a profit of $10,000, which was considered a long-term capital gain for Federal income tax purposes. In accordance with the trust instrument, the trustee allocated all the gain to corpus. Consequently, although no portion of this gain was includible in the distributable net income of the trust, the $10,000 gain was properly included in the Federal taxable income of the trust. For New York State income tax purposes, the amount of the Federal gain is reduced by the modification for the higher New York State basis as prescribed by section 112.3(d) of this Title. However, the modification for the portion of the Federal gain representing the difference between the Federal and New York State bases is limited to 40 percent, as the gain was considered a long-term capital gain for Federal income tax purposes. The modification, therefore, is $800 (40 percent of $2,000).

(6) The modification for the amount necessary to prevent the taxation, under article 22 of the Tax Law, of an annuity or other amount of income or gain which was previously taxable under article 16 of the Tax Law in accordance with the provisions of section 112.3(e) of this Title.

(7) The modification for that portion of wages and salaries paid or incurred for the taxable year for which a deduction is not allowed in accordance with the provisions of section 280C of the Internal Revenue Code pursuant to section 112.3(o) of this Title.

(8) The modification described in section 112.2(k) of this Title in the case of an estate or trust to which the assets of a qualified higher education fund are required to be distributed pursuant to section 612 (k)(3)(A)(iii) of the Tax Law.

(9) For taxable years beginning in 1982, 1983 and 1984, the modifications described in subdivisions (p) and (q) of section 112.2 of this Title and those described in subdivisions (u) and (v) of section 112.3 of this Title relating to an election made pursuant to 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.

(10) For taxable years beginning in 1982, 1983 and 1984, the modifications described in:

(i) section 112.2(r) of this Title relating to the disallowance of the amount allowable as the accelerated cost recovery system deduction pursuant to section 168 of the Internal Revenue Code; and

(ii) section 112.3(w) of this Title relating to the allowance of a depreciation deduction pursuant to section 167 of the Internal Revenue Code as such section would have applied to property placed in service on December 31, 1980.

(11) The modification described in section 112.2(s) of this Title or the modification described in section 112.3(x) of this Title relating to the disposition of recovery property for which accelerated cost recovery system deductions were not allowed (see section 112.2[r] of this Title) and for which New York depreciation deductions were allowed (see section 112.3[w] of this Title).

(b)Exception.

The New York taxable income of a nonresident estate or trust does not include that proportion of those modifications described in paragraphs (a)(1) through (11) of this section to the extent that such modifications relate to items of income, gain, loss or deduction attributable to New York State sources which, pursuant to the terms of the governing instrument, are paid or permanently set aside during the taxable year for a New York State charitable purpose (see section 139.3(b) of this Article).

N.Y. Comp. Codes R. & Regs. Tit. 20 § 138.4