43-1022

43-1022. Subtractions from Arizona gross
income

In computing Arizona adjusted gross income, the following amounts shall be
subtracted from Arizona gross income:

1. The amount of exemptions allowed by section 43-1023.

2. Benefits, annuities and pensions in an amount totaling not more than two
thousand five hundred dollars received from one or more of the following:

(a) The United States government service retirement and disability fund, retired or
retainer pay of the uniformed services of the United States, the United States foreign
service retirement and disability system and any other retirement system or plan
established by federal law.

(b) The Arizona state retirement system, the corrections officer retirement plan,
the public safety personnel retirement system, the elected officials' retirement plan, an
optional retirement program established by the Arizona board of regents under section
15-1628, an optional retirement program established by a community college district board
under section 15-1451 or a retirement plan established for employees of a county, city or
town in this state.

3. A beneficiary's share of the fiduciary adjustment to the extent that the amount
determined by section 43-1333 decreases the beneficiary's Arizona gross income.

4. The amount of any distributions from an individual retirement account as
provided for in section 408 of the internal revenue code or from a qualified retirement
plan of a self-employed individual as provided for in section 401 of the internal revenue
code to the extent that total adjustments made pursuant to this paragraph in all tax
years do not exceed the total of all contributions made by the taxpayer to such plans
prior to December 31, 1975, which were included in computing Arizona taxable income.

5. The amount of income on an installment receivable which is recognized pursuant
to the internal revenue code and which has already been recognized on the death of the
taxpayer for purposes of this title for tax years ending before January 1, 1990.

6. Interest income received on obligations of the United States, less any interest
on indebtedness, or other related expenses, and deducted in arriving at Arizona gross
income, which were incurred or continued to purchase or carry such obligations.

7. The amount of any income tax refunds which were received from states other than
Arizona and which were included as income in computing federal adjusted gross income.

8. Annuity income included in federal adjusted gross income pursuant to section 72
of the internal revenue code if the first payment with respect to such annuity was
received prior to December 31, 1978.

9. The excess of a partner's share of income required to be included under section
702(a)(8) of the internal revenue code over the income required to be included under
chapter 14, article 2 of this title.

10. The excess of a partner's share of partnership losses determined pursuant to
chapter 14, article 2 of this title over the losses allowable under section 702(a)(8) of
the internal revenue code.

11. The amount by which the adjusted basis of property described in this paragraph
and computed pursuant to this title and the income tax act of 1954, as amended, exceeds
the adjusted basis of such property computed pursuant to the internal revenue code. This
paragraph shall apply to all property which is held for the production of income and
which is sold or otherwise disposed of during the taxable year other than depreciable
property used in a trade or business.

12. The amount allowed by section 43-1024 for amortization, by a qualified defense
contractor certified by the department of commerce under section 41-1508, of a capital
investment for private commercial activities.

13. The amount of gain included in federal adjusted gross income on the sale or
other disposition of a capital investment that a qualified defense contractor has elected
to amortize pursuant to section 43-1024.

14. The amount allowed by section 43-1025 for contributions during the taxable year
of agricultural crops to charitable organizations.

15. The portion of any wages or salaries paid or incurred by the taxpayer for the
taxable year that is equal to the amount of the federal work opportunity credit, the
empowerment zone employment credit, the credit for employer paid social security taxes on
employee cash tips and the Indian employment credit that the taxpayer received under
sections 45A, 45B, 51(a) and 1396 of the internal revenue code.

16. The amount of prizes or winnings less than five thousand dollars in a single
taxable year from any of the state lotteries established and operated pursuant to title
5, chapter 5, article 1, except that all such winnings before March 22, 1983, including
periodic distributions from such winnings made after March 22, 1983, may be subtracted.

17. The amount of exploration expenses that is determined pursuant to section 617 of
the internal revenue code, that has been deferred in a taxable year ending before January
1, 1990 and for which a subtraction has not previously been made. The subtraction shall
be made on a ratable basis as the units of produced ores or minerals discovered or
explored as a result of this exploration are sold.

18. The amount included in federal adjusted gross income pursuant to section 86 of
the internal revenue code, relating to taxation of social security and railroad
retirement benefits.

19. To the extent not already excluded from Arizona gross income under the internal
revenue code, compensation received for active service as a member of the reserves, the
national guard or the armed forces of the United States, including compensation for
service in a combat zone as determined under section 112 of the internal revenue code.

20. The amount of unreimbursed medical and hospital costs, adoption counseling,
legal and agency fees and other nonrecurring costs of adoption not to exceed three
thousand dollars. In the case of a husband and wife who file separate returns, the
subtraction may be taken by either taxpayer or may be divided between them, but the total
subtractions allowed both husband and wife shall not exceed three thousand dollars. The
subtraction under this paragraph may be taken for the costs that are described in this
paragraph and that are incurred in prior years, but the subtraction may be taken only in
the year during which the final adoption order is granted.

21. The amount authorized by section 43-1027 for the taxable year relating to
qualified wood stoves, wood fireplaces or gas fired fireplaces.

22. With respect to a medical savings account established pursuant to section
43-1028:

(a) An eligible individual may subtract:

(i) The amount of contributions made by the individual's employer during the
taxable year to the individual's medical savings account pursuant to section 43-1028 to
the extent that the employer contributions are included in the individual's federal
adjusted gross income.

(ii) The amount deposited by the individual in the account during the taxable year
to the extent that the individual's contributions are included in the individual's
federal adjusted gross income.

(b) The individual's employer may subtract the amount of contributions made by the
employer to a medical savings account established on the individual's behalf to the
extent that the contributions are not deductible under the internal revenue code.

23. The amount by which a net operating loss carryover or capital loss carryover
allowable pursuant to section 43-1029, subsection F exceeds the net operating loss
carryover or capital loss carryover allowable pursuant to section 1341(b)(5) of the
internal revenue code.

24. Any amount of qualified educational expenses that is distributed from a
qualified state tuition program determined pursuant to section 529 of the internal
revenue code and that is included in income in computing federal adjusted gross income.

25. Any item of income resulting from an installment sale that has been properly
subjected to income tax in another state in a previous taxable year and that is included
in Arizona gross income in the current taxable year.

26. The amount authorized by section 43-1030 relating to holocaust survivors.

27. The amount authorized by section 43-1031 for constructing an energy efficient
residence.

28. An amount equal to the depreciation allowable pursuant to section 167(a) of the
internal revenue code for the taxable year computed as if the election described in
section 168(k)(2)(D)(iii) of the internal revenue code had been made for each applicable
class of property in the year the property was placed in service.

29. With respect to property that is sold or otherwise disposed of during the
taxable year by a taxpayer that complied with section 43-1021, paragraph 26 with respect
to that property, the amount of depreciation that has been allowed pursuant to section
167(a) of the internal revenue code to the extent that the amount has not already reduced
Arizona taxable income in the current or prior taxable years.

30. With respect to property for which an adjustment was made under section 43-1021,
paragraph 27, an amount equal to one-fifth of the amount of the adjustment pursuant to
section 43-1021, paragraph 27 in the year in which the amount was adjusted under section
43-1021, paragraph 27 and in each of the following four years.

31. For taxable years beginning from and after December 31, 2007 through December
31, 2012, the amount contributed during the taxable year to college savings plans
established pursuant to section 529 of the internal revenue code to the extent that the
contributions were not deducted in computing federal adjusted gross income. The amount
subtracted shall not exceed:

(a) Seven hundred fifty dollars for a single individual or a head of household.

(b) One thousand five hundred dollars for a married couple filing a joint
return. In the case of a husband and wife who file separate returns, the subtraction may
be taken by either taxpayer or may be divided between them, but the total subtractions
allowed both husband and wife shall not exceed one thousand five hundred dollars.

32. To the extent not already excluded from Arizona gross income under the internal
revenue code, the amount authorized by section 43-1032 for displaced pupils choice
grants.

33. The amount of any original issue discount that was deferred and not allowed to
be deducted in computing federal adjusted gross income or federal taxable income in the
current taxable year pursuant to section 108(i) of the internal revenue code as added by
section 1231 of the American recovery and reinvestment act of 2009 (P.L. 111-5).

34. The amount of previously deferred discharge of indebtedness income that is
included in the computation of federal adjusted gross income or federal taxable income in
the current taxable year pursuant to section 108(i) of the internal revenue code as added
by section 1231 of the American recovery and reinvestment act of 2009 (P.L. 111-5), to
the extent that the amount was previously added to Arizona gross income pursuant to
section 43-1021, paragraph 33.

35. The portion of the net operating loss carryforward that would have been allowed
as a deduction in the current year pursuant to section 172 of the internal revenue code
if the election described in section 172(b)(1)(H) of the internal revenue code had not
been made in the year of the loss that exceeds the actual net operating loss carryforward
that was deducted in arriving at federal adjusted gross income. This subtraction only
applies to taxpayers who made an election under section 172(b)(1)(H) of the internal
revenue code as amended by section 1211 of the American recovery and reinvestment act of
2009 (P.L. 111-5) or as amended by section 13 of the worker, homeownership, and business
assistance act of 2009 (P.L. 111-92).