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Department of Taxation and Finance

Guidance on 459-c and 467 income determinations for income tax filers

If you believe the applicant has completed the initial or renewal application accurately and completely, this is how we recommend you determine their income for purposes of the exemption:

For a municipality that did not exercise either the IRA or Social Security options (in other words, they accepted the defaults that IRA distributions are excluded from the income calculation and Social Security benefits are included in it):

  • Take the amount shown on Form 1040 Line 11 (Federal Adjusted Gross Income)
  • Add the amount shown on Form 1040 Line 2a (Tax-exempt interest)
  • Subtract the amount shown on Form 1040 Line 4b (Taxable IRA distributions).
  • Add the non-taxable Social Security benefits.  Determine the amount to be added as follows:
    • Take the amount shown on Form 1040 Line 6a (Social security benefits)
    • Subtract the amount shown on Form 1040 Line 6b (Taxable amount)
    • The result is the amount of the non-taxable Social security benefits that is to be added.
  • Apply the adjustments for unreimbursed medical/prescription drug expenses and residential health care expenses (Lines 9 and 10 of RP-459-c, RP-459-c-Rnw, RP-467, or Lines 4 and 5 of RP-467-Rnw), if applicable. 
  • Add the disallowed losses, if any.  To determine the amount to be added, see “Loss limitations,” below.

For a municipality that exercised the IRA option but not the Social Security option:

  • Take the amount shown on Form 1040 Line 11 (Federal Adjusted Gross Income)
  • Add the amount shown on Form 1040 Line 2a (Tax-exempt interest)
  • Add the non-taxable Social Security benefits.  Determine the amount to be added as follows:
    • Take the amount shown on Form 1040 Line 6a (Social security benefits)
    • Subtract the amount shown on Form 1040 Line 6b (Taxable amount)
    • The result is the amount of the non-taxable Social security benefits that is to be added.
  • Apply the adjustments for unreimbursed medical/prescription drug expenses and residential health care expenses (Lines 9 and 10 of RP-459-c, RP-459-c-Rnw, RP-467, or Lines 4 and 5 of RP-467-Rnw), if applicable.  
  • Add the disallowed losses, if any.  To determine the amount to be added, see “Loss limitations,” below.

For a municipality that exercised the Social Security option but not the IRA option:

  • Take the amount shown on Form 1040 Line 11 (Federal Adjusted Gross Income)
  • Add the amount shown on Form 1040 Line 2a (Tax-exempt interest)
  • Subtract the amount shown on Form 1040 Line 4b (Taxable IRA distributions).
  • Apply the adjustments for unreimbursed medical/prescription drug expenses and residential health care expenses (Lines 9 and 10 of RP-459-c, RP-459-c-Rnw, RP-467, or Lines 4 and 5 of RP-467-Rnw), if applicable. 
  • Add the disallowed losses, if any.  To determine the amount to be added, see “Loss limitations,” below.

For a municipality that exercised both the IRA option and the Social Security option:

  • Take the amount shown on Form 1040 Line 11 (Federal Adjusted Gross Income)
  • Add the amount shown on Form 1040 Line 2a (Tax-exempt interest)
  • Apply the adjustments for unreimbursed medical/prescription drug expenses and residential health care expenses (Lines 9 and 10 of RP-459-c, RP-459-c-Rnw, RP-467, or Lines 4 and 5 of RP-467-Rnw), if applicable. 
  • Add the disallowed losses, if any.  To determine the amount to be added, see “Loss limitations,” below.

Loss Limitations

  • If any losses were taken into account in the calculation of the applicant’s federal adjusted gross income, a limitation of $3,000 applies to each individual category of loss when determining the applicant’s income for purposes of the exemption. In addition, the aggregate amount of all losses cannot exceed $15,000.  
  • What this means in practice is that the applicant’s federal income tax return must be examined to determine whether any losses of over $3,000 were reported. If there were, then in each case, subtract $3,000 from the reported loss and add the balance to the applicant’s income.
    • In addition, if the return reports more than five different types of losses, and the total of the allowable losses exceeds $15,000, the excess will also have to be added to the applicant’s income. (By “allowable loss” we mean the loss that remains after the $3,000 cap is applied.) Note: The $15,000 cap on total allowable losses will most likely only apply to unusually complicated tax returns.
  • Major categories of losses:
    • Capital losses are reported on Form 1040 Line 7
    • Business losses are reported on Schedule 1, Line 3
    • “Other” losses are reported on Schedule 1, Line 4
    • Losses related to “Rental real estate, royalties, partnerships, S corporations, trusts, etc.” are reported on Schedule 1 Line 5
    • Farm losses are reported on Schedule 1 Line 6
    • Caution: An entry on one of these lines is not a loss if it is a positive number, it is only a loss if the entry is a negative  Negative numbers will be preceded by a minus sign or enclosed in parentheses.
  • Examples:
    • An entry of “-13,598” appears on Form 1040, Line 7, “Capital gain or (loss).” This is a loss (as indicated by the minus sign), and it exceeds the $3,000 cap by $10,598, so $10,598 must be added to the applicant’s income.
    • An entry of “(2975)” is reported on Schedule 1, Line 3, “Business income or (loss).” This is a loss (as indicated by the parentheses), but it is less than $3,000 so there is no excess Business loss to be added to the applicant’s income. 
      • Note, however, that if other categories of loss have also been reported on the applicant’s return, the $2,975 Business loss would need to be taken into account when determining whether the $15,000 limit on losses in the aggregate has been exceeded.
    • An entry of “64,890” appears on Schedule 1, Line 6, “Farm income or (loss).” This is a positive number (as indicated by the absence of a minus sign or parentheses), so it is not a loss and should be disregarded when applying the loss limitations.
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