Tax Deduction Details
If you received a civil service pension (nonmilitary*) and are at least 62 years of age, then you may be eligible for up to a $16,000 deduction. Beginning with tax year 2015, a surviving spouse (no minimum age requirement) may be eligible to claim the deduction.
For each qualifying individual, the deduction is limited to:
- the lesser of the amount of taxable civil service annuity income included in federal adjusted gross income or $16,000,
- less all amounts of Social Security income and tier 1 Railroad Retirement income (issued by the Railroad Retirement Board) received by the qualifying individual (as reported on Form 1040, line 20a, or Form 1040A, line 14a).
Example: The taxable amount of your civil service annuity is $6,000. You received $1,200 in Social Security income. You are age 67.
Here is how to figure your deduction.
Lesser of the taxable amount of the annuity or $16,000.............. $6,000
Total of Social Security/tier 1 Railroad Retirement income ........ - $1,200
Allowable deduction ..................................................................... $4,800
*See Military service deduction: Active, reserve and retirement pay for information about the taxability of military pension income.
To qualify for this deduction you must have:
- Been permanently and totally disabled at the time of your retirement;
- Retired on disability; and
- Received disability retirement income.
If you meet these requirements, view Schedule IT-2440.
Certain areas within Indiana have been designated as enterprise zones. These zones are established to encourage investment and job growth in distressed urban areas.
If you lived in and were an employee in one of these zones, and worked for a qualified employer in that zone, you may be eligible to claim a deduction. Your employer will provide you with a form IT-40QEC if you're eligible to claim this deduction.
If your employer provided the form IT-40QEC to you, your deduction will be one-half of the earned income shown on that form, or $7,500, whichever is less. Make sure to keep the IT-40QEC with your records as the department may request it at a later date.
You might be able to take this deduction if you lived in Indiana and:
- Received Medicaid payments;
- Were not living at home; and
- Were receiving care in a hospital, skilled nursing facility, an intermediate care facility, licensed county home, licensed boarding or residential home, or a certified Christian Science facility.*
If you meet the above requirements, see the instructions for Schedule 2, line 11 in the individual income tax booklet to see if you're eligible to claim the deduction and to help you figure it.
*An eligible Christian Science facility must be listed with and certified by the Commission for Accreditation of Christian Science Nursing Organizations/Facilities, Inc.
You may be eligible to deduct annuity payments received from a winning Hoosier Lottery ticket for a lottery held prior to July 1, 2002. This deduction applies only to prizes won from the Hoosier Lottery Commission; proceeds from other state lotteries or from other gambling sources, such as casinos, are not deductible. In addition, proceeds from winning Hoosier Lottery tickets for lotteries held after June 30, 2002, are not deductible.
Note. Individuals or entities that have purchased Hoosier Lottery prizes from a winning ticket holder for valuable consideration are not eligible for this deduction.
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 2017.) Write the amount you deduct as a positive figure.
Note: It is possible to have an Indiana NOL without also having a federal NOL. See Schedule IT-40NOL (link to: 5695.htm) for more information.
Indiana has a Long Term Care Insurance Program, which is an innovative partnership between the State of Indiana and private long-term care insurance companies. The premiums paid for this policy are eligible for a deduction.
The Indiana Partnership policy will have the following box of information on the outline of coverage, the application, or on the front page of the policy:
If you've included any interest from U.S. government obligations on your Indiana tax return, you're eligible for a deduction.
Examples of U.S. government obligations include U.S. Savings Bonds, U.S. Treasury Bills and U.S. Government Certificates. This interest is usually reported on federal Schedule B.
Interest income reported from a trust, estate, partnership or S corporation that is from the U.S. government obligations is also deducted.
You are eligible to take a deduction if the income you report on your income tax return includes active or reserve military pay.
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 if:
- You were at least 60 years of age by the end of the year;
- You were receiving military retirement or survivor's benefits during the year; AND
- The total benefits received as retirement income were reported on your federal return.
This deduction is equal to 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.
Note: Military income earned while in a combat zone may be exempt (not taxed) on your federal income tax return. If that income is exempt on your federal income tax return, then it will also be exempt (not taxed) for Indiana income tax purposes. Since Indiana isn't taxing this income, your combat zone income is not eligible for a deduction.
Important: If you received both military pay and retirement pay or survivor's benefits during the tax year, the total deduction cannot be greater than $5,000 per qualifying person. For example, if you earned $6,000 in military pay the first half of the year and $1,500 in retirement pay the second half of the year, you can deduct only $5,000 of your income.
There is a deduction for certain members of the reserve components of the Army, Navy, Air Force, Coast Guard, Marine Corps or the Merchant Marine, or a member of the Indiana Army National Guard or the Indiana Air National Guard.
A deduction is available for the income received as a result of service on involuntary orders during the period the above members were deployed and mobilized for full-time service, or during the period the above member's Indiana National Guard unit was federalized.
See instructions in the IT-40 Instruction booklet for more information.
You are eligible for a deduction if you won a gold, silver and/or bronze medal from participating in the Olympic/Paralympic games. The deduction equals the value of the medal(s) won plus the amount of income received during the taxable year from the United States Olympic Committee as prize money for winning the Olympic medal(s).
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 homeschooled.
- Your dependent child must be eligible to receive a free elementary or high school education in an Indiana school corporation;
- You must be eligible to claim the child as a dependent on your federal tax return; AND
- The child must be your natural or adopted child, if not, you must have been awarded custody of the child in a court proceeding making you the court appointed guardian or custodian of the child.
Some of the income from qualified patents included in federal taxable income may be exempt from Indiana adjusted gross income tax. A qualified patent is a utility patent or a plant patent issued after Dec. 31, 2007, for an invention resulting from a development process conducted in Indiana. The term does not include a design patent. You must maintain the completed Schedule IN-PAT with your records as the department can require you to provide it at a later date.
Benefits issued by the U.S. Railroad Retirement Board are not taxable by Indiana. Deduct unemployment and/or sick pay benefits issued by the U.S. Railroad Retirement Board on this line if:
• You included these benefits as taxable income on your federal tax return, and
• You did not already deduct these benefits on Schedule 2, lines 5 and/or 6.
Do not include any supplemental sick pay benefits on this line. Make sure to keep the statements (such as Form 1099G) issued by the U.S. Railroad Retirement Board as the department may request them at a later date.
If you included 'recovered' itemized deductions as other income on your federal income tax return, then that amount should be deducted on your Indiana income tax return.
A recovered state tax refund should be reported on its own line called 'State tax refund reported on federal return' on the deduction schedule (IT-40 Schedule 2, or IT-40PNR Schedule C).
All other recovered itemized deductions should be reported on the line called 'Recovery of deductions' on the deduction schedule (IT-40 Schedule 2, or IT-40PNR Schedule C).
You may be able to deduct up to $3,000 of the rent paid on your Indiana home.
You may be able to take this deduction if:
- You paid rent on your principal place of residence, AND
- The place you rented was subject to Indiana property tax.
Your "principal place of residence" is the place where you have your true, fixed, permanent home and where you intend to return after being absent.
Rent paid for summer homes or vacation homes is not deductible.
You cannot claim the renter's deduction if the rental property was exempt from Indiana property tax. Examples of this type of property are:
- Government owned housing;
- Property owned by a nonprofit organization;
- Student housing;
- Property owned by a cooperative association; and
- Property located outside of Indiana.
How much rent can I take off? You can deduct up to $3,000 or the amount of rent paid, whichever is less.
Example: Emily paid $4,800 in rent on her principal residence. She will claim a $3,000 renter's deduction.
Example: Bill paid $400 in rent at his first apartment, moved to another location and paid $3,300 for the remainder of the year. His deduction will be limited to $3,000 even though he paid $3,700 altogether.
You may be able to claim a deduction for the repayment of previously taxed income, also known as “claim of right,” if:
- You reported the income to Indiana in a previous year,
- You repaid some or all of it this year, and
- For federal tax purposes, you are eligible to:
- claim the repayment as an itemized deduction, or
- claim a credit based on the repayment amount.
Example: Ryan was a full-year Indiana resident in 2016, and received $1,700 unemployment compensation that year. He reported the full amount on his 2016 federal and Indiana income tax returns. Early in 2017 Ryan found out he had to repay $345 of that compensation; he repaid it that June. For 2017 federal tax purposes he is eligible to claim an itemized deduction* based on the $345 amount repaid. Ryan is eligible to claim the $345 amount as a repayment of previously taxed income as a deduction on his 2017 state tax return.
*In this example Ryan is not required to claim itemized deductions when figuring his federal taxable income; he may have opted to use the standard deduction instead. Regardless, he is still eligible to claim the deduction on his state tax return.
Important: Indiana does not tax Social Security income. Therefore, if you repaid some Social Security income during the year, it is not eligible for a deduction based on being repaid (because Indiana did not previously taxed this income).
See the IT-40 instruction booklet for more information about the Repayment of Previously Taxed Income
You may be able to take a deduction of up to $2,500 of the Indiana property taxes paid on your principal place of residence. Your principal place of residence is the place where you have your true, fixed home and where you intend to return after being absent.
Indiana does not tax Social Security and railroad retirement benefits issued by the Railroad Retirement Board.
All Social Security benefits and/or railroad retirement benefits (issued by the Railroad Retirement Board) included in the income taxed on your federal income tax return should be deducted on your Indiana tax return.
Indiana may tax a smaller amount of unemployment compensation than what is being taxed on your federal income tax return. Make sure to enclose your 1099G to claim the deduction.