Below are the Arizona subtractions from income you can enter on your Arizona return to the extent that they are included in your Federal taxable income:
Exclusion for U.S. Government, Arizona State or Local Government Pensions
If you (or spouse) received pension income, 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.
Arizona State Lottery Winnings
You are allowed to subtract up to $5,000 of lottery winnings from your income from that tax year. If you subtract your lottery winnings here, you may have to adjust your losses that were claimed as an itemized deduction.
Arizona Recalculated 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 it was 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
You may subtract the amount you contributed to a 529 savings plan 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.
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.
These Arizona subtractions from income can be entered in your account by following the instructions below:
- State Section
- Subtractions from Income
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.
Exclusion for Retired or Retainer Pay of the Uniformed Services of the United States
If you received benefits, annuities and pensions as retired or retainer pay of the uniformed services of the United States, you may subtract the amount you received or $3,500, whichever is less. If both you and your spouse each received such income, each spouse may subtract the amount received or $3,500, whichever is less.