"2006 Schedule 1 Form"
Line-by-Line Instructions for MI-1040 Schedule 1 Part-year and nonresidents, complete MI-4797, line 18b(2). Instructions are the application and processing fees) Schedule NR (see page 39) before with each form. which you deducted in previous years. proceeding. If you financed your MET contract Line 4: Enter losses from a business or Additions to Income property located in another state which with a MET-secured loan, deducted the Line 1: Enter gross interest, dividends you own as a sole proprietor, a partner cost of that contract and then defaulted and income from obligations or in a partnership, a shareholder in an S on the loan, enter the amount paid in securities of states and their political corporation or as a member of a pass- 2006 by MET to repay the portion of subdivisions other than Michigan. Add through entity. If your business is taxed your defaulted loan. this income even if it comes to you by both Michigan and another state, the through a partnership, S corporation, Subtractions From Income loss must be apportioned. Attach a estate or trust. You may reduce this Note: Part-year and nonresidents Schedule of Apportionment (Form income by related expenses not allowed subtract only income attributable to MI-1040H). as a deduction by Section 265(a)(1) of Michigan (column B of Schedule NR) the IRC. Line 5: Enter the net loss from the on all lines except line 11. federal column of your Michigan Line 8: Enter income from U.S. Line 2: Enter the deduction taken for MI-1040D, line 15, or MI-4797, line government obligations (e.g., Series EE self-employment tax on your federal 18b(1). bonds, Treasury notes, etc.), including return and for other taxes on or income from U.S. government measured by income, such as your Line 6: Enter the total of the following obligations received through a share of city income tax paid by (attach a schedule if necessary): partnership, S corporation or other partnerships or S corporations, or your • Add to the extent not included in pass-through entity. This subtraction share of the taxes paid by an estate or AGI the amount of money withdrawn must be reduced by related expenses trust. in the tax year from a Michigan used to arrive at AGI. Education Savings Program (MESP) Investment companies that invest in Line 3: Use Michigan Adjustments of account if the withdrawal was not a U.S. obligations are permitted to pass Gains and Losses (Form MI-1040D) qualified withdrawal as provided in the the tax-free exemption to their only if you have capital gains or losses MESP Act. You may first exclude any shareholders. attributable to: (1) an election to use amount that represents a return of Section 271 treatment for property If income from U.S. government contributions for which no deduction acquired before October 1, 1967; obligations exceeds $5,000, attach a was claimed in any prior tax year. (2) the sale or exchange of U.S. copy of your U.S. Schedule B or obligations which cannot be taxed by • Amount of NOL deduction (NOL Schedule 1 listing the amounts received Michigan; or (3) the sale or exchange carryforward) used to reduce AGI (see and the issuing agency. of property located in other states. page 7). Capital gains from the sale of U.S. If you reported gains on U.S. 4797 on • Refund received from a Michigan government obligations must be property acquired before October 1, Education Trust (MET) contract. If you adjusted on Michigan Form MI-1040D. 1967, or located in other states, adjust deducted the cost of a MET contract in previous years and received a refund Line 9: Enter compensation received the gain on the Michigan Adjustments from MET during 2006 because the for active duty in the U.S. Armed of Gains and Losses from Sales of MET contract was terminated, then Forces included in AGI. Include Business Property (Form MI-4797). enter the smaller of: (1) the refund you military retirement on line 12. Enter gains from the Michigan column received or (2) the amount of the Note: Compensation from the U.S. of your MI-1040D, line 14, and original MET contract price (including Public Health Service is not considered military pay. 14 qualified for the subtraction at the time You may not subtract: Line 10: Enter the gains from the of death • Amounts received from a deferred federal column of your Michigan Forms MI-1040D, line 14, and • Benefits paid to a senior citizen (age compensation plan that lets the MI-4797, line 18b(2). See instructions 65 or older) from a retirement annuity employee set the amount to be put for MI-1040 Schedule 1, line 3. policy that are paid for life (as opposed aside and does not set retirement age to a specified number of years). or requirements for years of service. Line 11: Income Attributable to You may subtract all pension benefits These plans include, but are not limited Another State. Nonresidents and part- included in AGI and received from the to, plans under Sections 401(k), 457 year residents, complete Schedule NR. following public sources: and 403(b) of the IRC. See instructions on page 40. Attach • Amounts received before the recipi- • The State of Michigan federal schedules. ent could retire under the plan provi- • Michigan local governmental units Business income that is taxed by sions, including amounts paid on (e.g., Michigan counties, cities and Michigan and another state must be separation, withdrawal or discontinu- school districts) apportioned. Complete and attach Form ance of the plan. MI-1040H. • Tier 2 railroad retirement • Amounts received as early • Federal civil service retirement incentives, unless the Capital gains from the sale of real property or tangible personal property • Military retirement from the U.S. incentives were paid from a pension located outside of Michigan must be Armed Forces. trust. adjusted on Michigan Form MI-1040D. If all retirement and pension benefits were received from public sources, Line 13: Senior citizens (age 65 or Michigan residents cannot subtract older) may subtract interest, dividends salaries and wages or other compensation enter the total of all benefits on line 12. and capital gains included in AGI. This earned outside Michigan. However, they If all retirement and pension benefits subtraction is limited to a maximum of may be entitled to a tax credit for tax were received from private sources, $9,128 on a single return or $18,255 on imposed by governmental units outside enter the smaller of: a joint return. However, the maximum Michigan (see pages 11-12). • The total of all private pensions must be reduced by the retirement Residents may subtract: included in AGI, or pension subtraction claimed on line 12. • Business income earned in other • $40,920 if you are a single filer, See Example B on the back of states and included in AGI, and $81,840 if you are married and filing Schedule 1 on page 32. • Net rents and royalties from real jointly. Line 14: Enter only the taxable portion property or tangible personal property If you received a combination of of Social Security and Tier 1 railroad located or used in another state. public and private retirement and benefits included on your U.S. 1040, pension benefits, follow these steps to line 20b, or your U.S. 1040A, line 14b. Line 12: Qualifying retirement and compute your deduction: pension benefits included in your AGI Do not include your total Social Step 1: Add all public retirement Security benefits. may be subtracted from income. The benefits included in AGI. amount you may subtract depends on Line 15: Renaissance zone deduction. the source of the benefit. Qualifying Note: If your public retirement benefits To be eligible you must meet all the benefits include: are greater than the maximum amounts following requirements: ($40,920 single filer or $81,840 • Pension plans that define eligibility • Be a permanent resident of a married filing jointly) you are not for retirement and set contribution and renaissance zone for at least 183 entitled to claim a subtraction for benefit amounts in advance consecutive days. private pensions. • Qualified retirement plans for the • Be approved at your local level. Step 2: If you are a single filer, deduct self-employed the amount in step 1 from $40,920. If • Must not be delinquent for any State • Distributions from a 401(k) or you are married filing jointly, deduct or local taxes abated by the 403(b) plan attributable to employer the amount in step 1 from $81,840. Renaissance Zone Act. contributions or attributable to Step 3: Add all private pensions • Must file an MI-1040 each year. employee contributions to the extent they result in matching contributions by included in AGI. • Have gross income of not more than the employer Step 4: Determine which is smaller, $1 million. • IRA distributions received after age the amount computed in step 2 or the If you were a full-year resident of a 59½ or described by Section amount computed in step 3. renaissance zone, you may subtract all 72(t)(2)(A)(iv) of the IRC (series of Step 5: Add the amount computed in income earned or received. Unearned equal periodic payments made for life) step 1 to the amount determined in step income such as capital gains may have 4 and enter the total on line 12. See to be prorated. If you lived in the zone • Benefits from any of the previous Example A on the back of Schedule 1 at least 183 consecutive days during plans received due to a disability, or as on page 32. 2006, you may subtract the portion of a surviving spouse if the decedent 15 income earned while a resident of the only allows a tax deduction for Michigan Form MI-1040D, line 15 or zone. If you are a part-year resident of contributions to accounts established Form MI-4797, line 18b(1). a zone, you must complete and attach through MESP. • Amount used to determine the credit a Schedule NR to your MI-1040. (See for elderly or totally and permanently “Special Note” on the back of Schedule Line 18: Michigan Education Trust. disabled from U.S. 1040 Schedule R, line NR, page 40.) You may deduct the following: 19, or U.S. 1040A Schedule 3, line 19. Beginning in 2006, certain Renaissance • If you purchased a MET contract • Michigan NOL deduction. Attach Zones will begin to phase out and the during 2006, you may deduct the total Form MI-1045. See page 7. tax exemption will be phased out at 25 contract price (including the processing fee). • Gross income included in AGI from percent increments during the zone’s Michigan gas and oil royalty interest or final three years of existence. If you • If you purchased a MET payroll working interest. are a resident of a zone that is phasing deduction or monthly purchase contract, you may deduct the amount • The amount of a distribution from out (check with your loal unit of paid on that contract during 2006 (not individual retirement accounts that government), you must reduce your including fees for late payments or qualify under section 408 of the IRC if credit as follows: insufficient funds). You should receive the distribution is used to pay qualified • 25 percent for the tax year that is higher education expenses (tuition, two years before the final year of an annual statement from MET specifying this amount. books, fees, etc.) at a postsecondary designation as a renaissance zone educational institution. • If you purchased a MET contract • 50 percent for the tax year • Holocaust victim payments. between 1988 and 1990 with a MET- immediately preceding the final year of • To the extent included in AGI, a secured loan and have not deducted the the designation as a renaissance zone distribution from a pension or total contract price, you may deduct the • 75 percent for the tax year that is the principal amount paid on the secured retirement plan that is contributed to a final year of the designation as a loan during 2006. qualifying charitable organization. To renaissance zone. qualify, you must make the payment to • The amount included in AGI as For additional information regarding income to the purchaser because the the charity within 60 days of receiving qualifications for the renaissance zone MET contract was terminated. the distribution, and reduce the amount deduction, call the Michigan Economic of the contribution by any pension Development Corporation at Line 19: Miscellaneous subtractions subtraction taken and two times the (517) 373-9808. include: total amount of credits claimed for a You may also call the Michigan Tele- • Any part of a qualified withdrawal public contribution credit, homeless Help System (1-800-827-4000) and from an MESP account included in AGI. shelter/food bank credit and the listen to topic #293. • Contributions to national or community foundation credit. Michigan political parties or You may not subtract: Line 16: You may subtract Michigan candidates. The maximum deduction is state and city income tax refunds and • Itemized deductions from U.S. $50 on a single return and $100 on a homestead property tax credit refunds Schedule A. joint return. that were included in AGI. • Sick pay, disability benefits and • Benefits from a discriminatory self- Note to farmers: You may subtract (to wage continuation benefits paid to you insured medical expense reimburse- the extent included in AGI) the amount by your employer or by an insurance ment plan, to the extent these reim- that your State or city income tax company under contract with your bursements are included in AGI. refund and homestead property tax employer. credit exceeds the business portion of • Proceeds and prizes included in AGI won in State of Michigan regulated • Unemployment benefits included in your homestead property tax credit. AGI, except railroad unemployment bingo, raffle or charity games. Line 17: Michigan Education benefits. • Amount of salary and wage expense Savings Program. You may deduct, to that cannot be deducted on your federal • Distributions from a deferred the extent not deducted in calculating return because you are claiming a work compensation plan received while a AGI, the total of all contributions less opportunity credit, clinical testing resident of Michigan. qualified withdrawals made during (orphan drug) credit or research credit. • Lottery winnings. (Exception: 2006 by the taxpayer in the tax year to Attach a copy of U.S. Work installment payments from prizes won accounts established through the Opportunity Credit (Form 5884), on or before December 30, 1988, may MESP. The deduction may not exceed Credit for Increasing Research be subtracted.) $5,000 for a single return or $10,000 Activities (Form 6765) or Orphan Drug Note: Include your installment gross for a joint return per tax year. There Credit (Form 8820) to substantiate this winnings as reported on your Form are numerous education savings subtraction. W-2G, box 1, and show on your accounts available from other states and • Losses from the disposal of property Schedule W, Table 1, in the appropriate investment companies, but Michigan reported in the Michigan column of box. 16