diff --git a/changelog.d/co-federal-deduction-addback-coordination.fixed.md b/changelog.d/co-federal-deduction-addback-coordination.fixed.md new file mode 100644 index 00000000000..f903b990200 --- /dev/null +++ b/changelog.d/co-federal-deduction-addback-coordination.fixed.md @@ -0,0 +1 @@ +Reduce Colorado's federal deduction addback by the Schedule A state income tax already added back on DR 0104 line 2. diff --git a/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/additions/federal_deduction/co_federal_deduction_addback.yaml b/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/additions/federal_deduction/co_federal_deduction_addback.yaml index b0b2b741e39..c4fa56a3ca3 100644 --- a/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/additions/federal_deduction/co_federal_deduction_addback.yaml +++ b/policyengine_us/tests/policy/baseline/gov/states/co/tax/income/additions/federal_deduction/co_federal_deduction_addback.yaml @@ -370,3 +370,132 @@ standard_deduction: 2_000 output: co_federal_deduction_addback: 1_000 + +# Rule 39-22-104(3)(p), paragraph (3) (2022), Rule 39-22-104(3)(p.5), +# paragraph (3)(a)(i), and the DR 0104 line 4 instructions (2023 to 2025): the +# addback is reduced by the Schedule A state income tax already added back on +# DR 0104 line 2. The same reduction carries to 2026. +- name: Case 36, 2025 single itemizer, addback reduced by the state income tax addback. + period: 2025 + input: + state_code: CO + co_federal_deduction_addback_required: true + filing_status: SINGLE + tax_unit_itemizes: true + itemized_taxable_income_deductions: 20_000 + co_state_addback: 5_000 + output: + # 20,000 - 12,000 - 5,000 + co_federal_deduction_addback: 3_000 + +- name: Case 37, 2025 joint itemizer, state income tax addback above the excess leaves no addback. + period: 2025 + input: + state_code: CO + co_federal_deduction_addback_required: true + filing_status: JOINT + tax_unit_itemizes: true + itemized_taxable_income_deductions: 30_000 + co_state_addback: 20_000 + output: + # max(0, 30,000 - 16,000 - 20,000) + co_federal_deduction_addback: 0 + +- name: Case 38, 2022 single itemizer, addback reduced by the state income tax addback. + period: 2022 + input: + state_code: CO + co_federal_deduction_addback_required: true + filing_status: SINGLE + tax_unit_itemizes: true + itemized_taxable_income_deductions: 40_000 + co_state_addback: 4_000 + output: + # 40,000 - 30,000 - 4,000 + co_federal_deduction_addback: 6_000 + +- name: Case 39, 2026 single itemizer, addback reduced by the state income tax addback. + period: 2026 + input: + state_code: CO + co_federal_deduction_addback_required: true + filing_status: SINGLE + tax_unit_itemizes: true + itemized_taxable_income_deductions: 20_000 + co_state_addback: 5_000 + output: + # 20,000 - 1,000 - 5,000 + co_federal_deduction_addback: 14_000 + +- name: Case 40, 2022 single itemizer, computed state income tax addback above the excess leaves no addback. + period: 2022 + input: + people: + head: + age: 45 + employment_income: 450_000 + real_estate_taxes: 2_000 + deductible_mortgage_interest: 25_000 + tax_units: + tax_unit: + members: [head] + state_withheld_income_tax: 8_000 + households: + household: + members: [head] + state_code: CO + output: + # SALT min(8,000 + 2,000, 10,000) + mortgage interest 25,000 + itemized_taxable_income_deductions: 35_000 + # min(8,000 state income tax, 35,000 - 12,950 standard deduction) + co_state_addback: 8_000 + # max(0, 35,000 - 30,000 - 8,000) + co_federal_deduction_addback: 0 + +- name: Case 41, 2025 single filer claiming the standard deduction with state withholding has no state income tax addback to subtract. + period: 2025 + input: + people: + head: + age: 45 + employment_income: 450_000 + tax_units: + tax_unit: + members: [head] + state_withheld_income_tax: 20_000 + tax_unit_itemizes: false + households: + household: + members: [head] + state_code: CO + output: + standard_deduction: 15_750 + # Only an itemizer adds back state income tax on DR 0104 line 2. + co_state_addback: 0 + # 15,750 - 12,000 + co_federal_deduction_addback: 3_750 + +- name: Case 42, 2026 single filer whose section 68 limitation makes the standard deduction larger has no state income tax addback to subtract. + period: 2026 + input: + people: + head: + age: 45 + employment_income: 1_000_000 + deductible_mortgage_interest: 6_500 + tax_units: + tax_unit: + members: [head] + state_withheld_income_tax: 10_000 + households: + household: + members: [head] + state_code: CO + output: + # SALT 10,000 + mortgage interest 6,500 = 16,500 before the limitation, + # above the 16,100 standard deduction; the limitation leaves 15,608, so + # the unit takes the standard deduction. + tax_unit_itemizes: false + co_state_addback: 0 + # 16,100 - 1,000 + co_federal_deduction_addback: 15_100 diff --git a/policyengine_us/variables/gov/states/co/tax/income/additions/federal_deductions/co_federal_deduction_addback.py b/policyengine_us/variables/gov/states/co/tax/income/additions/federal_deductions/co_federal_deduction_addback.py index feb488e21dd..6f7695db9ae 100644 --- a/policyengine_us/variables/gov/states/co/tax/income/additions/federal_deductions/co_federal_deduction_addback.py +++ b/policyengine_us/variables/gov/states/co/tax/income/additions/federal_deductions/co_federal_deduction_addback.py @@ -17,6 +17,15 @@ class co_federal_deduction_addback(Variable): "https://tax.colorado.gov/sites/tax/files/documents/DR_104_Book_2022.pdf#page=5", # Individual Income Tax Guide - Part 3 Additions to Taxable Income - Federal itemized or standard deductions "https://tax.colorado.gov/individual-income-tax-guide", + # 1 CCR 201-2, Rule 39-22-104(3)(p), paragraph (3) (2022), and + # Rule 39-22-104(3)(p.5), paragraph (3)(a)(i) (2023 to 2025): + # coordination with other addbacks. + # PDF pages 12-13 + "https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=12424&fileName=1%20CCR%20201-2#page=12", + # DR 0104 line 4 instructions, 2023 to 2025. + "https://tax.colorado.gov/sites/tax/files/documents/Book0104_2023.pdf#page=6", + "https://tax.colorado.gov/sites/tax/files/documents/DR0104_book_2024.pdf#page=9", + "https://tax.colorado.gov/sites/tax/files/documents/Book104_2025.pdf#page=9", ) defined_for = "co_federal_deduction_addback_required" @@ -32,4 +41,12 @@ def formula(tax_unit, period, parameters): ) filing_status = tax_unit("filing_status", period) exemption = p.exemption[filing_status] - return max_(deductions - exemption, 0) + # Rule 39-22-104(3)(p), paragraph (3) (2022), Rule 39-22-104(3)(p.5), + # paragraph (3)(a)(i), and the DR 0104 line 4 instructions (2023 to + # 2025) reduce this addition by the state income tax already added back + # under C.R.S. 39-22-104(3)(d)(I) (DR 0104 line 2), so the same dollars + # are not added back twice. The reduction applies from 2022 on, 2026 + # included. It excludes a share of state income tax deducted by a + # partnership or S corporation, which co_state_addback does not include. + state_income_tax_addback = tax_unit("co_state_addback", period) + return max_(deductions - exemption - state_income_tax_addback, 0) diff --git a/source_conflicts/candidates.yaml b/source_conflicts/candidates.yaml index 74cbb1c433c..c9e9ddc6db9 100644 --- a/source_conflicts/candidates.yaml +++ b/source_conflicts/candidates.yaml @@ -1734,6 +1734,53 @@ candidates: prs: [] state: unreviewed note: Verify the guide's year coverage and the model's comparison operator. +- id: us-co:federal-deduction-addback-net-of-state-tax-addback + program: income-tax + years: + from: 2022 + type: tax + question: Is Colorado's high-income federal deductions addback reduced by the state income tax already added back + under C.R.S. 39-22-104(3)(d)(I), or are the two additions made separately? + sources: + - kind: statute + citation: C.R.S. 39-22-104(3)(d)(I), (3)(p), (3)(p.5) and (3)(p.7) + url: https://olls.info/crs/crs2025-title-39.pdf#page=382 + - kind: regulation + citation: 1 CCR 201-2, Rule 39-22-104(3)(p), paragraph (3) + url: https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=12424&fileName=1%20CCR%20201-2#page=12 + - kind: regulation + citation: 1 CCR 201-2, Rule 39-22-104(3)(p.5), paragraph (3)(a)(i) + url: https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=12424&fileName=1%20CCR%20201-2#page=13 + - kind: instructions + citation: 2023 DR 0104 booklet, line 4 + url: https://tax.colorado.gov/sites/tax/files/documents/Book0104_2023.pdf#page=6 + - kind: instructions + citation: 2024 DR 0104 booklet, line 4 + url: https://tax.colorado.gov/sites/tax/files/documents/DR0104_book_2024.pdf#page=9 + - kind: instructions + citation: 2025 DR 0104 booklet, line 4 + url: https://tax.colorado.gov/sites/tax/files/documents/Book104_2025.pdf#page=9 + - kind: instructions + citation: 2022 DR 0104 booklet, line 4 + url: https://tax.colorado.gov/sites/tax/files/documents/DR_104_Book_2022.pdf#page=6 + readings: + statute: Read literally, (3)(d)(I) and (3)(p), (p.5) or (p.7) are two separate additions, so state income tax + deducted on Schedule A is added back once on DR 0104 line 2 and again inside the line 4 excess. + other: The two rules and the 2023 to 2025 booklets reduce the line 4 addition by the state income tax already + added back on line 2, excluding a share of state income tax deducted by a partnership or S corporation. + example: A 2025 single itemizer with $30,000 of itemized deductions, including $5,000 of state income tax added back + on line 2, adds back $13,000 on line 4 under the net reading and $18,000 under the literal one. + pe_us: + follows: gap-fill + code: + - policyengine_us/variables/gov/states/co/tax/income/additions/federal_deductions/co_federal_deduction_addback.py + prs: + - https://github.com/PolicyEngine/policyengine-us/pull/10094 + state: ruled + note: The statute does not say how the additions coordinate; the code nets them in every year from 2022, following + the rules, the booklets and the canon against counting a dollar twice. The 2022 booklet subtracts only the $30,000 + or $60,000 limit, with no reduction for state income tax, and no rule or booklet yet covers 2026, where the same + reading carries to (p.7). - id: us-co:joint-childless-eitc-dependent-question program: income-tax years: