Arizona offers the following deductions from federal taxable income.
Exclusion for U.S. Government, Arizona State or Local Government Pensions
If you (or spouse) received pension income from a qualifying source, subtract the amount received or $2,500 (whichever is less) from your Arizona income. If both of you received pension income, you may both subtract the amount received or $2,500 (whichever is less) from your Arizona income.
Recalculated Arizona Depreciation Deduction
Depending on when the asset is placed in service, the state of Arizona has different calculation methods that need to be used to figure the deduction. See the Arizona Instructions for more information.
American Indian Wages
Enrolled members of American Indian tribes may subtract wages earned while living and working on their tribe’s reservation.
Taxable Refund from Another State
You are allowed to subtract any taxable refund you received from another state that had to be added to your federal taxable income.
Deposits and employer contributions into Medical Savings Accounts (MSA)
You may deduct the contribution amount from your Medical/Health Savings Accounts that were allowed on your Federal Return.
Net Long Term Gain from assets acquired after December 31, 2011
Only include any net long-term capital gains if the asset can be verified to have been acquired after December 31, 2011.
Active Duty Military/Reserve/National Guard Pay
Active duty U.S. military servicemen may deduct their active duty pay from their Arizona income. National Guard and reservists may subtract their income received while being a Reservist or in the National Guard.
Net Operating Loss Adjustment
According to Instructions for Form 140 “Arizona did not adopt the special federal net operating loss rules for losses incurred during 2008 or 2009. " For calculation information, see Arizona Form 140 Instructions.
Contributions to 529 College Savings Plan or ABLE Account
You may subtract the amount you contributed to a 529 savings plan or ABLE account of up to $2,000 ($4,000 for married couples filing joint). If you are filing separate, the limit of the subtraction is still $4,000 and can be split between the two of you as long as it does not exceed $4,000 per beneficiary.
Partnership Income Adjustment (negative)
Use this adjustment if Arizona Form 165 Schedule K-1, line 3, shows a difference between federal and state distributable income.
Net Capital Gain Derived from Exchange of Legal Tender
Include the amount of any net capital gain included in Arizona gross income that is derived from the exchange of one type of legal tender to another.
Interest on U.S. Obligations
"Enter the amount of interest income from U.S. Government obligations included as income on your federal return. U.S. Government obligations include obligations such as savings bonds and treasury bills. You cannot deduct any interest or other related expenses incurred to purchase or carry the obligations. If such expenses are included in your Arizona gross income, you must reduce the subtraction by such expenses. If you are itemizing deductions on your Arizona return, you must exclude such expenses from the amount deducted." (Form 140 Instructions)
Exclusion for Retired or Retainer Pay of the Uniformed Services of the United States
Beginning with tax year 2021, you can subtract 100% of the amount you received from benefits, annuities and pensions as retired or retainer pay of the uniformed services of the United States. If both you and your spouse each received such income, each spouse may subtract 100% of the amount received.
- State Section
- Subtractions from Income