Minnesota does not automatically adopt every federal tax law change. When federal and Minnesota tax rules differ, you may need to complete Form M1NC, Federal Adjustments Not Adopted by Minnesota, to determine the adjustment required on your Minnesota income tax return.
Form M1NC identifies federal deductions, exclusions, depreciation adjustments, and other tax benefits that Minnesota does not recognize. Any resulting adjustment is then carried to your Minnesota return. The form is generated in the Minnesota return when you enter the required information in the program.
Why Do I Need Form M1NC?
Federal tax laws are updated regularly, but Minnesota may not immediately conform to those changes. Because of this, certain items allowed on your federal return may need to be adjusted for Minnesota tax purposes.
If you claimed a federal tax benefit that Minnesota has not adopted, you may be required to:
- Add the amount back to Minnesota income, or
- Subtract an amount from Minnesota income, depending on the specific provision.
Who Must Complete Form M1NC?
You may need Form M1NC if your federal return includes items affected by federal tax provisions that Minnesota does not fully conform to.
Common examples include:
- Certain depreciation adjustments
- Federal disaster-related tax provisions
- Special federal deductions or income exclusions
- Other federal tax law changes not adopted by Minnesota
The specific adjustments can change from year to year as both federal and Minnesota tax laws are updated.
Where Is the Adjustment Reported?
The adjustment calculated on Form M1NC generally flows to Schedule M1M, Income Additions and Subtractions. Minnesota taxpayers use Schedule M1M to report additions and subtractions required by state law.
If Form M1NC results in:
- An addition, the amount is included in Minnesota additions to income.
- A subtraction, the amount is included in Minnesota subtractions from income.
How Do I Enter Form M1NC Information in the Program?
Additions
To enter federal adjustments that increase Minnesota income:
- Select State
- Edit the Minnesota return using the three dots
- Select Additions to Income
- Choose Federal Adjustments Not Adopted by MN (Form M1NC)
Subtractions
To enter federal adjustments that decrease Minnesota income:
- Select State
- Edit the Minnesota return using the three dots
- Select Subtractions from Income
- Choose Federal Adjustments Not Adopted by MN (Form M1NC)
The program supports manual entries for the following:
Qualified Higher Education Expenses for Purposes of 529
You used a 529 account distribution for certain postsecondary credentialing expenses that are treated as qualified higher education expenses on your federal return.
Expansion of FICA Tip Credit
If your business claimed the expanded federal FICA Tip Credit on your federal return, Minnesota may require an adjustment.
Full Expensing for Bonus Depreciation Property
For businesses that claimed the federal full expensing for bonus depreciation property adjustment.
Allowable Depreciation for Bonus Depreciation Property
If Minnesota does not allow the same federal bonus depreciation you claimed, the program may ask for the allowable depreciation amount Minnesota permits for that property instead. Enter the depreciation amount calculated under Minnesota rules: https://www.revenue.state.mn.us/bonus-depreciation
Prior Year Allowable Depreciation for Bonus Depreciation Property
If you adjusted bonus depreciation property on a prior-year Minnesota return, the program may ask for the prior-year allowable depreciation so Minnesota can continue tracking the correct state depreciation amount.
Domestic Research and Experimental Expenditures
If your business claimed the federal adjustment for full expensing of domestic research and experimental expenditures, Minnesota may require an adjustment.
Allowable Depreciation for Domestic Research and Experimental Expenditures
If your business claimed federal treatment for domestic research and experimental expenditures, Minnesota may ask for the allowable depreciation amount it permits instead.
Prior Year Depreciation for Domestic Research and Experimental Expenditures
If your business had domestic research and experimental expenditures from a prior year, Minnesota may ask for the related prior-year depreciation so it can continue tracking the difference between federal and Minnesota treatment.
Modification of Limitation on Business Interest
If your business interest expense deduction was affected by the federal Modification of Limitation on Business Interest, Minnesota may require an adjustment because the state may not follow that federal treatment the same way for 2025.
Limitation on Deduction for Business Meals
Limitation for Expensing of Certain Depreciation Property
Allowable Depreciation on Certain Depreciation Property
Prior year Depreciation on Certain Depreciation Property
Special Depreciation Allowance for Qualified Production Property
Allowable Depreciation on Certain Depreciation Property
Prior year Depreciation on Certain Depreciation Property
Enhancement of Advanced Manufacturing Investment Credit
Exempt Facility Bond Rules for Spaceports
If your business claimed a federal adjustment related to Exempt Facility Bond Rules for Spaceports, Minnesota may require an adjustment on Schedule M1NC because the state may not follow that federal change the same way for 2025.
Subpart F Provisions
If your federal return includes an adjustment related to Subpart F income or deductions, Minnesota may require an adjustment.
Enhancement of Employer-Provided Child Care Credit
If your business claimed the federal Enhanced Employer-Provided Child Care Credit, Minnesota may require an adjustment.
Exception to Percentage of Completion Method of Accounting
If your business used the federal Exception to the Percentage of Completion Method of Accounting, Minnesota may require an adjustment.
Expansion of Qualified Small Business Stock Gain Exclusion
If your federal return claimed the expanded Qualified Small Business Stock Gain Exclusion, Minnesota may require an adjustment.
Treatment of Certain Sound Recording Productions
If your business claimed a federal deduction or adjustment for certain sound recording productions, Minnesota may require an adjustment.
Allowable depreciation for Certain Sound Recording Productions
If your business claimed a federal deduction or adjustment for certain sound recording productions, Minnesota may ask for the allowable depreciation amount it permits under state rules.
Prior year depreciation for Certain Sound Recording Productions
If you adjusted certain sound recording productions on a prior-year Minnesota return, enter the related prior-year depreciation allowed under Minnesota rules so the state can continue tracking the difference between federal and Minnesota treatment.
Exclusion of Interest on Loans Secured by Rural or Agricultural Real Property
If you excluded federal interest income from loans secured by rural or agricultural real property, Minnesota may require you to add that income back on Schedule M1NC because the state does not follow that federal exclusion the same way for 2025.
Termination of Energy Efficient Commercial Buildings Deduction
Reverse federally depreciation of Energy Efficient Commercial Buildings
If you claimed federal depreciation related to the Energy Efficient Commercial Buildings Deduction, Minnesota may require you to reverse that federally claimed depreciation
Termination of Cost Recovery for Energy Property
If your business claimed federal cost recovery for certain energy property, Minnesota may require an adjustment.
Allowable depreciation for Cost Recovery for Energy Property
If you claimed federal cost recovery for energy property, Minnesota may ask for the allowable depreciation amount it permits under state rules instead.
Prior year depreciation for Cost
If you adjusted cost recovery for energy property on a prior-year Minnesota return, enter the related prior-year depreciation allowed under Minnesota rules so the state can continue tracking the difference between federal and Minnesota treatment.
Employee Retention Credit Enforcement Provisions
If your federal return includes an adjustment related to Employee Retention Credit enforcement provisions, Minnesota may require an adjustment.
Recovery for Energy Property
If you claimed federal treatment for cost recovery for energy property, Minnesota may require an adjustment
Other Adjustments to Adjusted Gross Income
If your federal return includes another adjustment to adjusted gross income that is not listed separately on Schedule M1NC, enter it as an Other adjustment to adjusted gross income. This adjustment will carry to Schedule M1M as either an addition or subtraction from income.