The 2011 Indiana General Assembly did not conform to several provisions within the Internal Revenue Code that were included in federal adjusted gross income as of Jan. 1, 2011. Therefore, these provisions must be added back on the state tax return. These add-backs must be reported in tax years beginning after Dec. 31, 2009. Many individuals have filed amended 2010 state tax returns to report the add-backs; several filing under extension reported the add-backs when they filed.
For those who have yet to report these add-backs for 2010 and do not wish to file an amended return, Indiana has a new policy as to how they may be reported. Specifically, you can choose to report the required add-back(s) for 2010 on your 2011 state tax return.

Schedule 1: Add-Backs

Some amounts reported on your federal tax return may require different treatment for Indiana income tax purposes. I have listed a few of those items that may need to be added back on your Indiana tax return.

Discharge of debt of a principal residence add-back 117

You may have to add back some or all of the amount of debt not reported on your federal tax return due to the discharge of indebtedness of your principal residence (mortgage forgiveness). The amount of discharge of indebtedness of your principal residence to be added back can be found on:
• Form 1099-C (or its equivalent), Box 2, and/or
• On federal Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). If Part 1 Line 1e is checked on Form 982, then the amount on Part 1 Line 2 from the discharge of qualified principal residence indebtedness must be added back if you were an Indiana resident on the date the debt was discharged (1099C, Box 1).
**Note: No add back is required if the discharge of indebtedness of your principal residence was included in a bankruptcy.
Maintain with your records both federal Form 1099C and Form 982 as the Department can require you to provide this information at a later date.
Enter code 117 on Schedule 1 under line 7 if reporting this add-back.

Educator expense add-back 124 (324 for 2010*)

If you claimed a deduction for the educator expenses under Section 62(2)(D) of the Internal Revenue Code on Form 1040 or Form 1040A you must add the amount back.
Enter code 124 on Schedule 1 under line 7 if reporting this add-back for the 2011 tax year.
*If you need to add this back for the 2010 tax year and have not yet done so (either when you filed your 2010 tax return or by filing an amended return), you may do so now. Just enter code 324 on
Schedule 1 under line 7 if reporting this add-back for the 2010 tax year.

Employer-provided educational expenses add-back 125 (325 for 2010*)

Add any amount not included in your gross income under section 127 of the Internal Revenue Code for employer-provided education expenses (gross income of an employee does not include expenses paid by the employer for educational assistance to the employee up to a maximum of $5,250).
Enter code 125 on Schedule 1 under line 7 if reporting this add-back for the 2011 tax year.
*If you need to add this back for the 2010 tax year and have not yet done so (either when you filed your 2010 tax return or by filing an amended return), you may do so now. Just enter code 325 on
Schedule 1 under line 7 if reporting this add-back for the 2010 tax year.

Qualified leasehold improvement property add-back 129 (329 for 2010*)

If you excluded income because of qualified leasehold improvement property (as provided in Section 168(e)(3)(E)(iv) of the Internal Revenue Code) placed into service in the taxable year, add the amount of income excluded so that your adjusted gross income (AGI) is equal to the amount of AGI that would have been figured without the exclusion.
Enter code 129 on Schedule 1 under line 7 if reporting this add-back for the 2011 tax year.
*If you need to add this back for the 2010 tax year and have not yet done so (either when you filed your 2010 tax return or by filing an amended return), you may do so now. Just enter code 329 on Schedule 1 under line 7 if reporting this add-back for the 2010 tax year.

Student loan interest add-back 128

If you claimed a deduction for interest paid on qualified education loans under Section 221 of the IRC, add the amount, if any, by which the deduction you claimed exceeds the amount you would have been entitled to deduct prior to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. 111-312).
Enter code 128 on Schedule 1 under line 7 if reporting this add-back for the 2011 tax year.

Tuition and fees add-back 123 (323 for 2010*)

If you claimed a deduction for qualified tuition and related expenses under Section 222 of the Internal Revenue Code on Form 1040 or Form 1040A you must add the amount back. Enter code 123 on Schedule 1 line 7 if reporting this add-back for the 2011 tax year. *If you need to add this back for the 2010 tax year and have not yet done so (either when you filed your 2010 tax return or by filing an amended return), you may do so now. Just enter code 323 on Schedule 1 under line 7 if reporting this add-back for the 2010 tax year.

Schedule 2:Deductions

Line 7 – Military service deduction

The income on line 1 of Form IT-40 may include active or reserve military pay. If it does, you will be able to take a deduction (regardless of your age).
Also, if you are retired from the military or are the surviving spouse of a person who was in the military, you may be able to take this deduction. You will be eligible if:
• You were at least 60 years of age by Dec. 31, 2011,
• You received military retirement or survivor’s benefits in 2011, and
• The benefits received as retirement income were reported on your federal return.
Your deduction will be the actual amount of military income received (i.e. military pay, retirement pay and/or survivor’s benefits) or $5,000, whichever is less. If both you and your spouse received military income, you may each claim the deduction for a maximum of $10,000. There are other rules for Indiana National Guard or reservist.
Tax Information Bulletins #6 and #27 at www.in.gov/dor/3650.htm.

Line 10 – Nontaxable portion of unemployment compensation

You may be eligible for a deduction if you reported unemployment compensation on your federal income tax return. There is a worksheet to complete.

Human services deduction 605

The human services deduction is intended to eliminate any individual income tax imposed on Medicaid recipients who are living in a:
• Hospital,
• Skilled nursing facility,
• Intermediate care facility, • Licensed county home,
• Licensed boarding or residential home, or
• Certified Christian Science facility.*
The goal of the human services tax deduction is to reduce the affected individual’s adjusted gross income tax liability to zero (0).
Generally, the deduction should not be used to create a refund.
Enter code 605 on Schedule 2 under line 11 if claiming this deduction.

Indiana net operating loss deduction 607

You may take a deduction for the Indiana portion of the federal net operating loss deduction (NOL) you added back on line 2 of Schedule 1. (This will be a net operating loss deduction from an earlier year(s) carried forward to 2011.) Write the amount you deduct as a positive figure. Also, maintain with your records a copy of the federal Form 1040 from the loss year as the Department can require you to provide this information at a later date.
Enter code 607 on Schedule 2 under line 11 if claiming this deduction.

Medical savings account deduction 612

You may be eligible for a deduction if your employer deposited funds in certain medical care savings accounts. If you received Form IN-MSA from the account provider you should deduct any medical withdrawals and exempt interest income reported in Box 2 and/or Box 7.
Note. You are not eligible to claim this deduction if you also claimed a medical savings account deduction on the front page of federal Form 1040.
Enter code 612 on Schedule 2 under line 11 if claiming this deduction.

Private school/home school deduction 626

You may be eligible for a deduction based on education expenditures paid for each dependent child who is enrolled in a private school or is home schooled.

Dependent child qualifications:
• Your dependent child must be eligible to receive a free elementary or high school education
(K-12 range) in an Indiana school corporation;

• You must be eligible to claim the child as a dependent on your federal tax return; and Education expenditures are enrollment, attendance, or participation of your dependent child in a private elementary or high school education program. The term includes tuition, fees, computer software, textbooks, workbooks, curricula, school supplies (other than personal computers), and other written materials used primarily for academic instruction or for academic tutoring, or both. The term does not include the delivery of instructional service in a home setting to your dependent child who is enrolled in a school corporation or a charter school.
A “private elementary or high school education program” means attendance at a nonpublic school (including a private school, a parochial school and a home school) in Indiana that satisfies a child’s obligation for compulsory attendance meaning a child must be in attendance in a school for a minimum of 180 days in a calendar year.
Note. No deduction will be available based on a child who is enrolled in school for a period of less than 180 days in a calendar year.
Figure your deduction. If you made an unreimbursed education expenditure during 2011 your deduction is:
(1) $1,000; multiplied by
(2) the number of qualified dependent children for whom you made education expenditures.
How to report the deduction. If the private school or home school is registered with the Indiana Department of Education (IDOE), enter the school’s name and identifying number assigned by the IDOE.
Examples.
• On Schedule 2 line 11a enter “XYZ Home school 019999Z” in the “Enter deduction name”
box, followed by code no. 626 and the amount of the deduction.
• If the school is not registered with the IDOE, just enter the name “XYZ Home school” in the “Enter deduction name” box, followed by code no. 626 and the amount of the deduction.
• If the school has no designated name, enter “private school/home school” in the “Enter
deduction name” box, followed by code no. 626 and the amount of the deduction. For more information about this deduction, see Income Tax Information Bulletin #107 at www.in.gov/dor/3650.htm

Schedule 6: Offset Credits

Twenty-first century scholars program credit 834
A credit is allowed for contributions made to the Twenty-First Century Scholars Program Support Fund. The credit is equal to 50 percent of the contributions made during the tax year up to a maximum limit of $100 for a single return and $200 for a joint return. To claim this credit, you must complete and enclose Schedule TCSP-40.
Note. This credit is not the same as the College Credit.
Enter code 834 under line 6 if claiming this credit.

• Three or more children lived with you and you earned less than $43,998 ($49,078 if married filing jointly),
• Two children lived with you and you earned less than $40,964 ($46,044 if married filing jointly),
• One child lived with you and you earned less than $36,052 ($41,132 if married filing jointly), or
• A child did not live with you and you earned less than $13,660 ($18,740 if married filing jointly).
• You are 24 or older.
• The maximum investment income you can have and get the credit has increased to $3,150.
• Indiana has a new worksheet for EIC

• A total combined credit limit of $500 for all tax years after 2005.
• A combined credit limit of $200 for windows for all tax years after 2005.
• A maximum credit for residential energy property costs of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy-efficient building property.