NY State Deductions & Other Credits

Question 1

True or False
unreimbursed job expenses and unreimbursed miscellaneous expenses are still deductible for New York State purposes.

Answer 1

True

Question 2

New York State Itemized Deductions

The following itemized deductions are allowed on your client’s New York State tax return:

Answer 2

Medical expenses;
Taxes paid;
Interest paid;
Gifts to charity;
Casualty and theft loss;
Unreimbursed job expenses; and
Other miscellaneous deductions.

Question 3

What form is used for NY State itemization

Answer 3

New York itemized deductions are claimed on Form IT-196, New York Resident, Nonresident, and Part-year Resident Itemized Deductions. The IT-196 replaces the IT-201-D, Resident Itemized Deduction Schedule.

For more information on itemized deductions, visit the Tax Department’s New York itemized deduction webpage.

Question 4

True or False
Limitations on New York Itemized Deductions

New York State itemized deductions may be limited based upon filing status and federal adjusted gross income.

Answer 4

True

Question 5

The following medical expenses incurred or paid may be used to calculate itemized deductions:

Answer 5

• Bandages;
• Body scan;
• Braille books;
• Breast pump and supplies;
• Capital expenses for equipment or improvements to a home needed for medical care (see the worksheet in Publication 502);
• Diagnostic devices;
• Expenses of an organ donor;
• Eye surgery to treat defective vision, such as laser eye surgery;
• Fertility enhancement;
• Certain fertility procedures;
• Guide dogs or other animals aiding the blind, deaf, and disabled;
• Hospital services fees associated with inpatient care, such as meals
• and lodging;
• Lead-based paint removal;
• Legal abortion;
• Legal sterilization to make a person unable to have children, such as a vasectomy;
• Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners);
• Medicare Part B and D premiums;
• Medical and hospital insurance premiums;
• Nursing services;
• Oxygen equipment and oxyge
• Part of life-care fee paid to retirement home designated for medical care;
• Physical examination;
• Pregnancy test kit;
• Prosthetic devices (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, and so forth);
• Psychiatric and psychological treatment;
• Qualified Long-Term Care Services;
• Social security tax, Medicare tax, FUTA, and state employment tax for a worker providing medical care;
• Special education for mentally or physically disabled persons;
• Stop smoking programs;
• Transportation for needed medical care;
• Treatment at a drug or alcohol center (includes meals and lodging provided by the center);
• Wages for nursing services; and
• Weight loss services, if the weight loss is for a specific diagnosed disease.

Question 6

Medical and dental expense deduction

Answer 6

• Federal deduction: Your clients can deduct expenses that exceed 7.5% of their federal adjusted gross income (FAGI).
• New York State deduction: Your clients can deduct only the part of the medical and dental expenses that exceed 10% of their FAGI.

Question 7

Medical and dental expenses common mistakes

Answer 7

1. Deduction taken for drugs and medications not prescribed by a doctor

IRC section 213(b) allows a deduction of prescription medication expenses.
Medicines or drugs that can be purchased without a prescription do not qualify as medical expenses (revenue rulings 2003-58).
2. Expenses for “general health” are not deductible, such as:

Therapeutic vacations.
Gym memberships.
“Natural medicines” such as nutritional supplements, vitamins, and herbal supplements.

3. Health Insurance Premiums

• Health insurance premiums paid entirely by an employer or the government are not deductible.
• Health insurance premiums paid with pre-tax dollars through your clients’ paychecks are not deductible.
• If your client buys health insurance from a state or federally run health insurance marketplace, they can only deduct the portion of premiums paid out of pocket. Your clients can not deduct the amount of any subsidy.

Question 8

Taxes your client paid deduction

Answer 8

Federal deduction: The deduction for state and local taxes paid is limited to a combined amount not to exceed $10,000 ($5,000 if married filing separate). In addition, your clients can no longer deduct foreign taxes paid on real estate on federal Schedule A.

New York deduction: Your clients’ itemized deduction for state and local taxes paid is not subject to the federal limit. In addition, your clients can deduct foreign taxes paid on real estate.

Question 9

Real property taxes

To be deductible, real property taxes must satisfy three tests (Rev. Rul. 80-121):

Answer 9

The tax must be imposed or triggered by the ownership of real property and not on the exercise of one or more of the incidents of property ownership, such as the use or disposition of the property;
the tax must be measured by the value of the real property itself, and not by any other value, such as the value of a renter’s use of the property; and
the tax must be imposed on the property itself, and not solely as a personal tax; for instance, an excise tax on the use of property is not a real property tax.

Question 10

Personal property taxes

To be deductible, personal property taxes must meet three criteria (Reg. 1.164-3(c)(1)):

Answer 10

The tax must be ad valorem; that is, substantially proportionate to the value of the personal property;
The tax must be imposed on an annual basis, even if it is collected more or less frequently; and
The tax must be imposed on personal property. A tax meets this requirement even if in form it is imposed on the exercise of a privilege.

Question 11

General sales tax

Answer 11

Definition

A general sales tax is a tax imposed at one rate on the retail sale of a broad range of classes of items (IRC section 164(b)(5)(B)).

To be deductible, the sales tax must be separately stated (Notice 2005-31).

Substantiation requirements

Your client may use the optional sales tax tables to compute their deduction. In this case, they do not need to provide substantiation.
If your client does not use the optional sales tax tables, they must keep the actual receipts showing the amount of sales taxes paid (IRS Publication 600).

Question 12

Interest your client paid

Answer 12

Your client can deduct home mortgage interest for federal and New York State purposes, subject to certain limitations.

A home mortgage is any loan that is secured by your main home or second home, regardless of how the loan is labeled.

It includes first and second mortgages, home equity loans, and refinanced mortgages.

A home can be a house, condominium, cooperative, mobile home, boat, or similar property. It must provide basic living accommodations including sleeping space, toilet, and cooking facilities.

Mortgage Insurance Premiums

A deduction for mortgage insurance premiums is no longer allowed for federal and New York State purposes.

Question 13

Interest your client paid (continued)

Answer 13

Federal deduction: For federal purposes, a deduction is allowed for home mortgage interest, subject to certain limitations.

A deduction for interest paid on home equity loans and lines of credit is only allowed if used to buy, build or substantially improve the taxpayer’s home that secures the loan (“qualifying debt”).

Interest paid on a home equity loan used to pay personal expenses, such as credit card debt, is not deductible.

Question 14

Interest your client paid (continued)
New York State

Answer 14

New York State deduction: For New York State purposes, a deduction is allowed for home mortgage interest, subject to certain limitations.

A deduction for interest paid on home equity loans and lines of credit is allowed if used to buy, build or substantially improve the taxpayer’s home.
Interest paid on a home equity loan used to pay personal expenses, such as credit card bills, buy a car, or pay tuition is allowed.

Question 15

Federal home mortgage interest deduction

Answer 15

Beginning in tax year 2018, the federal itemized deduction rules for home mortgage and home equity interest have changed.

Limit on loans taken out on or before December 15, 2017. For qualifying debt taken out on or before December 15, 2017, your client can only deduct home mortgage interest on up to $1,000,000 ($500,000 if married filing separately) of that debt.
Limit on loans taken out after December 15, 2017. For qualifying debt taken out after December 15, 2017, your client can only deduct home mortgage interest on up to $750,000 ($375,000 if married filing separately) of that debt.

Question 16

New York home mortgage interest deduction

Answer 16

For New York State purposes, the itemized deduction for the total interest your client paid is computed using the federal rules that applied to tax year 2017.

Your client can deduct home acquisition debt and home equity debt, subject to certain limitations.

Home acquisition debt is a mortgage your client took out after October 13, 1987, to buy, build, or substantially improve a qualified home (a main or second home). It must also be secured by that home.

Home acquisition debt limit: the total amount your client can treat as home acquisition debt at any time on a main home and second home can’t be more than $1 million ($500,000 if married filing separately).

Question 17

New York home mortgage interest deduction (continued)

Answer 17

Home equity debt is a loan your client took out for reasons other than to buy, build, or substantially improve a home. In addition, debt incurred to buy, build, or substantially improve a home, to the extent it is more than the home acquisition debt limit (detailed above), may qualify as home equity debt.

Home equity debt limit: the total home equity debt on a main or second home is limited to $100,000 ($50,000 if married filing separately).

Question 18

Gifts to charity deduction
The following types of contributions are reported on federal Schedule A:

Answer 18

cash donations
non-cash donations
carry forwards
For noncash donations over $500, you must attach federal Form 8283.

Question 19

Charitable deduction

Federal Deduction

Answer 19

In 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law, which raised the federal itemized deduction limitation for certain cash contributions from 60% to 100% of your
clients’ FAGI.

Question 20

Charitable deduction (cont.)

New York State Deduction:

Answer 20

Beginning in tax year 2020, the New York itemized deduction limitation for **charitable contributions is 60% of your clients’ FAGI.
**
Additional limitations apply based upon your client’s AGI:

If your client’s New York adjusted gross income (AGI) is over $1 million and no more than $10 million, or your client’s New York AGI is over $10 million, their total New York itemized deduction (including charitable contributions) is limited to 50% or 25% of their federal deduction for charitable contributions, respectively.
The itemized deduction limitation for individuals with New York AGI of more than $10 million was due to expire but has been extended through tax year 2024.

Question 21

For donations by cash or check

Your client must provide to you all of the following:

Answer 21

1. Canceled checks, credit card statements, or bank statements showing all of the following:

• the name of the qualified charity;
• the date of the contribution; and
• the amount of the contribution.

Question 22

For donations by cash or check (continued)

Your client must provide to you all of the following:

Answer 22

2. A written statement from the qualified charity containing all of the following:

your client’s name and address;
the date of the contribution;
the amount of the contribution;
the name of the qualified charity or organization; and
the charity’s or organization’s employment identification number (EIN).

Question 23

For noncash contributions and donated goods

Your client must provide receipts showing all of the following:

Answer 23

their name and address;
the name and address of the qualified charity or organization; and
a detailed description of the donated items acknowledged by the charitable organization, including their fair market value at the time of the donation.

Question 24

Gifts to charity deduction

Contributions of $250 or more

Answer 24

Your client can deduct a gift of $250 or more only if they have a statement from the charitable organization showing the information below:

• The amount of any money contributed and a description (but not value) of any property donated; and
• Whether the organization did or did not give your client any goods or services in return for their contribution. If your client did receive any goods or services, a description and estimate of the value must be included. If your client received only intangible religious benefits (such as admission to a religious ceremony), the organization must state this, but it does not have to describe or value the benefit.
• In computing whether a gift is $250 or more, do not combine separate donations. For example, if your client gave their church $25 each week for a total of $1,300, treat each $25 payment as a separate gift. If your client made donations through payroll deductions, treat each deduction from each paycheck as a separate gift.

Question 25

Gifts to charity deduction

Common mistakes:

Answer 25

• Donations made to non-qualifying organizations.
• Deducting an incorrect amount. If your client provided goods or services in consideration of the donation, the deductible amount is the amount of the donation, less the fair market value of goods or services received.
• Deducting amounts that cannot be substantiated. For more information on acceptable proof to deduct gifts to charity, see our webpage, Checklists for acceptable proof of itemized deductions.

Question 26

Your client may not claim the following under gifts to charity:

Answer 26

• Money or property your client gives to:
• Civic leagues, social and sports clubs, labor unions, and chambers of commerce;
• Foreign organizations (except certain Canadian, Israeli, and Mexican charities);
• Groups that are run for personal profit;
• Groups whose purpose is to lobby for law changes;
• Homeowners’ associations;
• Individuals; and
• Political groups or candidates for public office.
• Cost of raffle, bingo, or lottery tickets;
• Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups;
• Tuition;
• Value of time or services; and
• Value of blood given to a blood bank

Question 27

Casualty and theft loss deduction
Federal deduction:

Answer 27

For federal purposes, taxpayers are no longer allowed to deduct a casualty or theft loss unless it is the result of a federally declared disaster. You will have to attach federal Form 4684, Casualties and Thefts.

Qualified disaster losses are personal casualty losses sustained as a result of federally declared disasters: Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma, or Hurricane Maria.

Question 28

Casualty and theft loss deduction
New York State Deduction

Answer 28

A deduction can be claimed for losses caused by theft, vandalism, fire, storm, or similar causes; car, boat, and other accidents and corrosive drywall. Your client may also be able to deduct money they had in a financial institution was that lost due to insolvency or bankruptcy of the institution.

Question 29

Casualty and theft loss deduction
When deductible

Answer 29

Casualty losses are generally deductible the year they occur. When the loss is caused by a disaster, it may be deducted the year immediately preceding the year it occurred.

Question 30

Casualty and theft loss deduction

Federal deduction

Answer 30

For federal purposes, your client can deduct personal casualty or theft loss only to the extent that:

• the deductible amount for each casualty and theft loss is more than $100; and
• the total amount of all losses during the year (reduced by the $100 limit in 1) above) is more than 10% of federal adjusted gross income (FAGI).

Question 31

Casualty and theft loss deduction

New York deduction

Answer 31

• For New York State purposes, your client can deduct personal casualty or theft loss only to the extent that:
• the deductible amount for each casualty and theft loss is more than $100; and
• the total amount of all losses during the year (reduced by the $100 limit in 1) above) is more than 10% of federal adjusted gross income (FAGI).

Question 32

Casualty and theft loss deduction

Example of deduction amount:

Answer 32

A taxpayer has two casualty losses in 2022.

The amount of the first loss is $2,000; the taxpayer was reimbursed $500 by the insurance company.
The amount of the second loss is $5,000; the taxpayer was reimbursed $2,000 by the insurance company.
The taxpayer’s AGI is $30,000. Following is the computation for the deduction:

First Loss:

($2,000 - 500) - 100 = $1,400

Second Loss:

($5,000 - 2,000) - 100 = $2,900

Deductible Amount:

($1,400 + 2,900) – (30,000 x 10%) = $4,300 - $3,000 = $1,300

Question 33

Casualty and theft loss deduction

Common mistakes:

Fair market value vs. adjusted basis

Answer 33

air market value vs. adjusted basis

Do not use the fair market value of the property when computing the loss. You must use the smaller of:

• the adjusted basis in the property before the casualty or theft; and
• the decrease in fair market value of the property as a result of the casualty or theft.
• Insurance reimbursement and salvage value

Question 34

Casualty and theft loss deduction

Common mistakes:
Insurance reimbursement and salvage value

Answer 34

When computing the amount of the loss, you must subtract any insurance reimbursements and salvage values.

Loss is not sudden, unexpected, or unusual

An example of this is a loss caused by bug infestation (such as termites or carpenter ants).

Question 35

Job expenses and certain miscellaneous deductions

New York State deduction: For New York purposes (Form IT-196, lines 21 through 24), your client can claim the following deductions:

Answer 35

• Travel, Entertainment, Gift, and Car Expenses;
• Miscellaneous Deductions;
• Business Use of Your Home (Including Use by Daycare Providers);
• Social Security and Other Information for Members of the Clergy and Religious Workers;
• Tax Benefits for Education; and
• Employee Business Expenses.

Question 36

Job expenses and certain miscellaneous deductions

Unreimbursed employee business expenses and miscellaneous deductions from IT-196, lines 21-24 are subject to a 2% floor. See the IT-196-I, Instructions for Form IT-196, for more information in computing unreimbursed employee expenses.

Deductions are deductible only if paid or incurred during the taxable year:

Answer 36

• for being an employee in a trade or business; and
• are ordinary and necessary:
• Ordinary expenses are expenses that are common and accepted in a trade or business.
• Necessary expenses are expenses that are appropriate and helpful to a business.

Question 37

Unreimbursed employee expenses

Your client may be able to deduct the following items as unreimbursed employee expenses:

Answer 37

• Bad business debt of an employee;
• Business liability insurance premiums;
• Damages paid to a former employer for breach of an employment contract;
• Depreciation on a computer their employer requires them to use in their work;
• Dues to a chamber of commerce, if membership helps do their job;
• Dues to professional societies;
• Educator expenses;
• Home office, or part of their home used regularly and exclusively in their work;
• Job search expenses in their present occupation;
• Laboratory breakage fees;
• Legal fees related to their job;
• Licenses and regulatory fees;
• Malpractice insurance premiums;
• Medical examination fees required by an employer;
• Occupational taxes;
• Passport fees for a business trip;
• Repayment of an income aid payment received under an employer’s plan;
• Research expenses of a college professor;
• Rural mail carriers’ vehicle expense;s
• Subscriptions to professional journals and trade magazines related to their work;
• Tools and supply expenses used in their work;
• Travel, transportation, meals, entertainment, and gifts expenses related to their work;
• Union dues and expenses;
• Work clothes and uniforms expenses, if required and not suitable for everyday use; and
• Work-related education fees.

Question 38

Home office expenses

If your client uses a part of their home regularly and exclusively for business purposes, they may be able to deduct a part of the operating expenses and depreciation of their home.

They can claim this deduction for the business use of a part of their home only if they use that part of their home regularly and exclusively:

Answer 38

• as their principal place of business for any trade or business (the regular and exclusive business use must be for the convenience of their employer, and not just appropriate and helpful in their job);
• as a place to meet or deal with their patients, clients, or customers in the normal course of their trade or business; or
• in the case of a separate structure not attached to their home, in connection with their trade or business.

Question 39

Home office and travel expenses

Answer 39

If your client’s home office qualifies as their principal place of business, they can deduct daily transportation costs between their home and another work location in the same trade or business.

Question 40

Unreimbursed Travel Expenses

Travel expenses are those incurred while traveling away from home for an employer.

Travel expenses include:

Answer 40

• the cost of getting to and from a business destination (such as air, rail, bus, or car);
• meals and lodging while away from home;
• taxi fares;
• baggage charges; and
• cleaning and laundry expenses.

Local travel expenses

• Local transportation expenses are the expenses of getting from one workplace to another when not traveling away from home. They include the cost of transportation by air, rail, bus, taxi, and the cost of using a car.
• Your client can use the standard mileage rate to figure their car expenses.
• If they work at two places in a day, whether or not for the same employer, they can generally deduct the expenses of getting from one workplace to the other.

Commuting expenses

• Your client may not deduct the costs of commuting between their residence and their place of employment.

Question 41

Temporary employment of one year or less

Answer 41

If an assignment or job away from home in a single location is realistically expected to last (and does in fact last) for one year or less, it is temporary, unless there are facts and circumstances that indicate it is not.

Your client can deduct daily travel expenses incurred going between their home and a temporary work assignment outside the metropolitan area where they live and normally work.

Question 42

Temporary employment of more than one year

Answer 42

If employment at a work location is expected to last more than one year, it is no longer considered temporary.

Your client cannot deduct any expenses for travel away from their tax home for any period of a temporary employment of more than one year.

Question 43

Meals and entertainment

Answer 43

Your client can deduct entertainment expenses (including entertainment-related meals,) only if they are directly related to the active conduct of a trade or business.

Generally, your client can deduct only** 50% of their business meal **and entertainment expenses, including meals incurred while away from home on business.

Question 44

Work clothes and uniforms

Answer 44

Your client can deduct the cost and upkeep of work clothes if the following two requirements are met:

they must wear them as a condition of their employment; and
the clothes are not suitable for everyday wear.
Examples include:

Protective clothing such as steel toe boots or helmets; and.
Uniforms for police and security officers or other unique clothing such as scrubs for doctors and nurses.
Work clothes and uniforms should be in line with your client’s business or profession and your client must keep receipts to prove any deduction claimed.

Question 45

Work-related education

Answer 45

Your client can deduct expenses for education, even if the education may lead to a degree, if the education meets at least one of the following two tests:

it maintains or improves skills required in their present work; and
it is required by their employer or the law to keep their salary, status, or job, and the requirement serves a business purpose of their employer.
They cannot deduct expenses for education, even though one or both of the preceding tests are met, if the education:

is needed to meet the minimum educational requirements to qualify them in a trade or business; or
is part of a program of study that will lead to qualifying them in a new trade or business.

Question 46

Educator expenses

Answer 46

Your client can report up to $250 of educator expenses as an adjustment to gross income. If they cannot deduct expenses as an adjustment to income, they can deduct them as itemized deductions subject to the 2% limitation.

Question 47

Tax preparation fees

Answer 47

Your client can usually deduct tax preparation fees for the year in which they pay them. Thus, on the current year’s tax return, they can deduct fees paid during the tax year for preparing the previous year’s return.

These fees include the cost of tax preparation software programs and tax publications. They also include any fee paid for e-filing their return.

Question 48

Other expenses

Your client can deduct certain other expenses as miscellaneous itemized deductions subject to the 2% of AGI limitation, even if they are not related to the trade or business of being an employee.

They can deduct the ordinary and necessary expenses that they paid to:

Answer 48

produce or collect income that must be included in gross income;
manage, conserve, or maintain property held for producing such income; or
determine, contest, pay, or claim a refund of any tax.

Question 49

Examples of other expenses:

Answer 49

• Certain legal and accounting fees;
• Clerical help and office rent;
• Custodial (for example, trust account) fees;
• Your share of the investment expenses of a regulated investment company;
• Certain losses on non federally insured deposits in an insolvent or bankrupt financial institution;
• Casualty and theft losses of property used in performing services as an employee (see Casualty and theft, Form IT-196-I, worksheet, page 4);
• Deduction for repayment of amounts under a claim of right if $3,000 or less; and
• Convenience fee charged by the card processor for paying your income tax (including estimated tax payments) by credit or debit card. The deduction is claimed for the year in which the fee was charged to your card.

Question 50

Common mistakes:

Answer 50

Claiming a deduction for work clothes that are suitable for general wear

Example: Your client is a lawyer and is required to wear a business suit every day. A business suit, including a shirt and tie, is everyday wear and is not deductible.

Claiming a deduction for maintaining professional appearance

• Waitress;
• Sales representatives.

Claiming reimbursable expenses

If your client is not reimbursed for employee expenses, but could have been reimbursed, (that is, fails to file an expense report, or chooses not to be reimbursed), the expenses are not deductible.

Claiming expenses that are neither ordinary nor necessary

Extravagant and lavish expenses fall into this category.

Question 51

Other Miscellaneous Deductions

Answer 51

Deduction for amortizable bond premiums

In general, if the amount your client paid for a bond is greater than its stated principal amount, the excess is bond premium. Your client can elect to amortize the premium on taxable bonds. The amortization of the premium is generally an offset to interest income on the bond rather than a separate deduction item.

Casualty and theft loss on income producing property

Your client can deduct a casualty or theft loss as a miscellaneous itemized deduction not subject to the 2% limit, if the damaged or stolen property was income-producing property.
Federal estate tax on income in respect of a decedent

Your client can deduct the federal estate tax attributable to income from a decedent that they as a beneficiary include in their gross income.

Gambling Loss

Generally, your client can deduct losses only up to the reported amount of winnings.
Impairment-related work expenses

If your client has a physical or mental disability that limits their being employed, or substantially limits one or more of their major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working, they can deduct impairment-related work expenses.
Impairment-related work expenses are ordinary and necessary business expenses for attendant care services at a place of work, and other expenses in connection with a place of work that are necessary for them to be able to work.

Question 52

Other Miscellaneous Deductions

A qualified performing artist

Answer 52

A qualified performing artist is an individual who:

1) performed services in the performing arts as an employee for at least two employers during the tax year;

2) received from at least two of those employers wages of $200 or more per employer;

3) had allowable business expenses attributable to the performing arts of more than 10% of gross income from the performing arts; and

4) had adjusted gross income of $16,000 or less before deducting expenses as a performing artist.

If your client meets all the requirements for a qualified performing artist, you may have deducted the part of line 10 amount attributable to performing-arts-related expenses as a federal adjustment to gross income on your federal income tax return.

Any performing-arts-related business expenses in excess of the amount deducted as a federal adjustment to income on federal Form 1040, line 24, can be claimed as a New York itemized deduction on Form IT-196, line 21.

Question 53

Other Miscellaneous Deductions

Losses from Ponzi-type investment schemes

Answer 53

Losses from Ponzi-type investment schemes

These losses are deductible, as theft losses of income-producing property, on a tax return for the year the loss was discovered.
If your client qualifies to use Revenue Procedure 2009-20 (as modified by Revenue Procedure 2011-58) and chooses to follow the procedures in the guidance, on the worksheet in the Form IT-196 Instructions, complete Section C before completing Section B.

Question 54

Other Miscellaneous Deductions

Repayments under claim of right

Answer 54

If your client had to repay more than $3,000 that was included in income in an earlier year because at the time they thought they had an unrestricted right to it, they may be able to deduct the amount that was repaid, or take a credit against the tax.

Unrecovered investment in a pension or annuity

A retiree who contributed to the cost of an annuity can exclude from income a part of each payment received as a tax-free return of the retiree’s investment.
If the retiree dies before the entire investment is recovered tax free, any unrecovered investment can be deducted on the retiree’s final income tax return.

Question 55

Additions to federal itemized deductions

Answer 55

To compute your client’s New York itemized deduction, you must add certain amounts that were allowed as a deduction under federal IRC, but not allowed under New York Tax Law, including:

Interest expenses on income subject to NY tax

Interest expense on money borrowed to purchase or carry bonds or securities, whose interest is subject to New York income tax, but exempt from federal income tax, if this interest expense was not deducted on the federal return or shown as a New York subtraction.

Question 56

Additions to federal itemized deductions

Answer 56

Interest expense on money borrowed on exempt interest

Ordinary and necessary expenses paid or incurred during the tax year in connection with income, or property held for the production of income, subject to New York income tax, but exempt from federal income tax, if these expenses were not deducted on the federal return or shown as a New York subtraction.

Amortization interest income subject to NY tax

Amortization of bond premium attributable to the tax year on any bond whose interest income is subject to New York income tax, but exempt from federal income tax, if this amortization was not deducted on the federal return or shown as a New York subtraction.

Question 57

Additions to federal itemized deductions

Qualified donations to a food pantry credit

Answer 57

If your client claimed a credit on Form IT-649, Farm Donations to Food Pantries Credit, then enter the amount of qualified donations to a food pantry that was deducted as a charitable contribution.

Question 58

Subtractions from federal itemized deductions

Answer 58

To compute your client’s New York itemized deduction, you must subtract certain amounts that were allowed as a deduction under federal IRC, but not allowed under New York Tax Law, including:

State, local and foreign taxes

State, local, and foreign income taxes (or general sales tax, if applicable) from Form IT-196, lines 5 and 8.

Ordinary expenses paid in connection with income

Ordinary and necessary expenses paid or incurred in connection with income, property held for the production of income, exempt from New York income tax, but only to the extent included in Form IT-196, lines 1 through 40.

Question 59

Subtractions from federal itemized deductions

Amortization interest exempt from NY income tax

Answer 59

Amortization of bond premium attributable to 2018 on any bond whose interest income is exempt from New York income tax, but only to the extent included in Form IT-196, lines 1 through 40.

Interest expense

Interest expense on money borrowed to purchase or carry bonds or securities, whose interest is exempt from New York income tax, but only to the extent included in Form IT-196, lines 1 through 40

Question 60

Subtractions from federal itemized deductions

Answer 60

Shareholder of a federal S-corp

If your client is a shareholder of a federal S corporation that could elect, but did not elect, to be a New York S corporation, any federal S corporation deductions cannot be included their New York Itemized Deduction. If your client took a federal itemized deduction that flowed to their federal personal income tax return, they must add back these deductions on the IT-196, lines 1 through 40. See the IT-196- I, Instructions for Form IT-196, for additional information.

If your client is a shareholder of a federal S corporation that could elect, but did not elect, to be a New York S corporation, any S corporation deductions cannot be included in Form IT-196. If an S corporation short year is involved, the deductions must be allocated.

Question 61

Subtractions from federal itemized deductions continued

Long-term care premiums

Answer 61

Premiums paid for long-term care insurance to the extent deducted to determine federal taxable income. (See the instructions for Form IT-196.)

Question 62

Subtractions from federal itemized deductions

Disallowed union dues

Answer 62

The amount of disallowed union dues that were included on the unreimbursed employee business expense worksheet that were subject to the 2% miscellaneous itemized deduction limitation, are added back on line 44 of Form IT-196. If no deduction for union dues were claimed as a miscellaneous itemized deduction due to the 2% limitation, the addition is the full amount of union dues paid during the year.

Question 63

Required documentation

Answer 63

As a tax professional, you should only claim the deductions your client can provide required documentation for.

If your client is audited by the IRS or New York State, they will need to show detailed documentation to support the amounts claimed on the tax return.

For a list of required documentation to support the deductions claimed on the return, see our webpage Checklists for acceptable proof of itemized deductions.

Question 64

IT-228, Contributions to Certain Funds Credit

For tax years beginning on or after January 1, 2019, a personal income tax credit is available to individuals who contribute to the following charitable funds:

Answer 64

• The Health Charitable Account;
• The Elementary and Second Education Account;
• Health Research Incorporated;
• State University of New York Impact Foundation; and
• Research Foundation of the City of New York.

Question 65

IT-228, Contributions to Certain Funds Credit

Important filing information:

Answer 65

Your client must apply to make a qualified donation and retain the certificate of receipt for contributions made to Health Research Inc., SUNY Impact Foundation, and Research Foundation of CUNY.

Your client must provide proof to support any donation claimed on their return.

For more information, see our Contributions to certain funds credit webpage.

Question 66

IT-226, Employer Compensation Expense Program Wage Credit

Answer 66

The Employer Compensation Expense Program (ECEP) established a new optional Employer Compensation Expense Tax (ECET) that employers can elect to pay if they have employees that earn over $40,000 annually in wages and compensation in New York State. Employees of participating employers may be eligible to claim the ECEP wage credit when filing their New York State personal income tax return.

Important filing information:

Your client can only claim this credit if their employer elected to participate in this program. Your client must verify with their employer that the employer participated before claiming this credit.

For more information, see our Employer Compensation Expense Program (ECEP) wage credit webpage.

Question 67

Forms IT-256 and CT-43 – Claim for Special Additional Mortgage Recording Tax Credit

Answer 67

Your client is entitled to claim this refundable credit if they or their business:

paid special additional mortgage recording tax, other than on residential mortgages, where the real property is in:

Erie County; or
the Metropolitan Commuter Transportation District (MCTD), which is comprised of the counties of New York, Bronx, Queens, Kings, Richmond, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester.