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Tax Expenditure Appendix A

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The following tax expenditures have been revised or created due to recent law changes:

The Personal Income Tax:

Circuit Breaker Tax Credit Increased (see item 1.609):  A credit is allowed to an owner or tenant of residential property located in Massachusetts equal to the amount by which the real estate tax payment or 25% of the rent constituting real estate tax payment exceeds 10% of the taxpayer’s total income.  For tax year 2011, the credit is capped at $980. The amount of the credit is subject to limitations based on the taxpayer’s total income and the assessed value of the real estate, which must not exceed $729,000. For tax year 2011, an eligible taxpayer’s total income cannot exceed $52,000 in the case of a single filer who is not a head of household filer, $65,000 for a head of household filer, and $78,000 for joint filers. In order to qualify for the credit, a taxpayer must be age 65 or older and must occupy the property as his or her principal residence. See TIR 11-11 for more information.

Conservation Land Tax Credit (see item 1.615):  Effective for tax years beginning on or after January 1, 2011, a credit is allowed for qualified donations of certified land to a public or private conservation agency. The credit is equal to 50% of the fair market value of the qualified donation. The amount of the credit that may be claimed by a taxpayer for each qualified donation cannot exceed $50,000. The credit is refundable but not transferable. The certification process is conducted by the Executive Office of Energy and Environmental Affairs (EEA). EEA has promulgated a regulation, 301 CMR 14.00, entitled Conservation Land Tax Credit, which sets forth criteria for authorizing and certifying the credit. See also, 830 CMR 62.6.4, entitled Conservation Land Tax Credit, promulgated by DOR to explain the calculation of the allowable credit.

Current Federal Code Provisions Allowed by Massachusetts: 

As a general rule, Massachusetts will not adopt any federal tax law changes incorporated into the Internal Revenue Code (“Code”) after January 1, 2005. However, certain specific provisions of the personal income tax automatically adopt the current Code, and are reflected in these estimates. Provisions of the Code adopted on a current Code basis are (i) Roth IRAs, (ii) IRAs, (iii) the exclusion for gain on the sale of a principal residence, (iv) trade or business expenses, (v) travel expenses, (vi) meals and entertainment expenses, (vii) the maximum deferral amount of government employees’ deferred compensation plans, (viii) deduction for health insurance costs of self-employed, (ix) medical and dental expenses, (x) annuities, and (xi) health savings accounts.  See TIRs 98-8, 02-11, 07-4, and 09-21 for further details on Massachusetts personal income tax current Code provisions.

Temporary Increase in Earned Income Credit (see item 1.605):  The federal Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) and subsequent legislation temporarily increased the beginning and end points of the earned income tax credit (EITC), increased the credit for three or more children and made other taxpayer beneficial changes, with changes set to expire December 31, 2010.  For federal income tax purposes, the Tax Relief Act of 2010 extends the enhanced EITC for two years, through December 31, 2012. The Massachusetts earned income tax credit equals 15% of the federal earned income tax credit received by the taxpayer for the taxable year. Therefore, Massachusetts allows 15% of the amount the taxpayer receives federally under IRC sec. 32. 

Temporary Increase in IRC Sec. 179 Expensing (see item 1.305):  Effective for tax years beginning in 2010 and 2011, for federal income tax purposes, the federal Small Business Jobs Act of 2010 (Public Law 111-240) increased the IRC sec. 179 election to expense property in its initial year from $250,000 to $500,000. The federal Act also increased the sec. 179 overall investment phase-out threshold for the 2010 and 2011 tax years from $800,000 to $2,000,000. Further, the Act allows up to $250,000 of specified “qualified real property” to qualify for the expense election in 2010 and 2011.  Massachusetts adopts these changes because sec. 179 is a trade or business expense deduction; these deductions are adopted by Massachusetts on a current Code basis.

Current Federal Deductions Not Allowed

Parking, Combined Commuter Highway Vehicle Transportation and T-Pass Fringe Benefit — IRC sec. 132(f) (see item 1.030):  The federal exclusion amounts for tax year 2011 are $230 per month for qualified parking, and $230 per month for combined commuter highway vehicle transportation and transit passes. The Tax Relief Act of 2010 temporarily increased the exclusion amount for combined commuter highway vehicle transportation and transit passes to $230 per month through the tax year 2011. Massachusetts follows the January 1, 2005 Code and does not adopt the increased exclusion allowed by the Tax Relief Act of 2010 for combined commuter highway vehicle transportation and transit passes.  The Massachusetts exclusion amounts for tax year 2011 are $230 per month for qualified parking, and $120 per month for combined commuter highway vehicle transportation and transit passes.  For further discussion, see TIR 10-20.

Federal Deduction — Not Allowed Federal “Bonus” Depreciation —IRC sec. 168(k):  For federal income tax purposes, the Tax Relief Act of 2010 expands the additional first-year depreciation deduction (“bonus depreciation”) under IRC sec. 168(k) to equal 100% of the cost of “qualified property;” the property must be placed in service after September 8, 2010, and before January 1, 2012. Under 2002 legislation, Massachusetts decoupled from bonus depreciation allowed under IRC sec. 168(k), as amended and in effect for the current year. Therefore, Massachusetts does not adopt this additional depreciation deduction. See TIRs 02-11 and 03-25 for further details.

Federal Deduction — Not Allowed Domestic Production Activity Deduction —IRC sec. 199:  For federal income tax purposes, a business entity that pays wages to employees and conducts eligible domestic production activities is allowed a deduction for domestic production activities under IRC sec. 199. Generally, in the case of a non-corporate taxpayer, the deduction allows a business with qualified production activities to deduct 9% of its U.S. adjusted gross income. Under 2004 legislation, Massachusetts de-coupled from the production activity deduction allowed under IRC sec. 199, as amended and in effect for the current year. Therefore, Massachusetts does not adopt this deduction. See TIR 05-5. 

Federal Exclusion — Not Allowed Mortgage Forgiveness — IRC sec. 108(a):  The federal Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) amended IRC sec. 108(a) by adding an exclusion for indebtedness that is discharged before January 1, 2010 and is qualified principal residence indebtedness. The Economic Stabilization Act of 2008 extended this exclusion for three years, until January 1, 2013.  Massachusetts does not adopt this exclusion or the extension because they were enacted after January 1, 2005.

Corporate and Other Business Excise:

New Tax Incentive in the Life Science: Refundable Jobs Credit

The Life Sciences Tax Incentive Program in G.L.c. 23I, section 5, has a new tax incentive. A corporation may in certain circumstances be allowed a refundable jobs credit against its tax liability under G.L.c. 63. The credit must be authorized by the Life Sciences Tax Incentive Program; this is not a credit a taxpayer can claim without prior approval. Among the conditions for claiming this credit is the taxpayer’s commitment to create a minimum of 50 net new permanent full-time positions in Massachusetts. See TIR 11-06.

Conservation Land Credit (New)

Effective for tax years beginning on or after January 1, 2011, a credit is allowed for qualified donations of certified land to a public or private conservation agency. The credit is equal to 50% of the fair market value of the qualified donation. The amount of the credit that may be claimed by a taxpayer for each qualified donation cannot exceed $50,000. The credit is refundable but not transferable. The certification process is conducted by the Executive Office of Energy and Environmental Affairs (EEA). EEA has promulgated a regulation, 301 CMR 14.00, entitled Conservation Land Tax Credit, which sets forth criteria for authorizing and certifying the credit. See also, 830 CMR 62.6.4, entitled Conservation Land Tax Credit, promulgated by DOR to explain the calculation of the allowable credit.

Some administrative Changes

There are administrative changes that will affect corporations, relating to interest charges after audit, at G.L. c. 62C, section 32(f), and to overpayments of tax, applications for abatement and refunds, at G.L. c. 62C, sections 36 and 37. See FY 2012 budget, St. 2011, c. 68, and TIR 11-06.

Updated corporate excise tax rate reduction schedule: The following tables have been created by referring to G.L. Ch. 63 Sections 32 D and 39, and Ch. 62 Section 4.

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