The federal Tax Cuts and Jobs Act of 2017 (TCJA) has implications for states that link their tax code to the federal code, as Connecticut does. In response, the legislature made several changes to compensate. Here’s a quick summary of the tax code updates that may affect your 2018 Connecticut tax return.
New for 2018
Pass-Through Entity Tax
There is a new 6.99% income tax on most pass-through businesses at the entity level. Owners of an affected business will be entitled to a credit against their income tax equal to 93.01% of their share of the entity tax paid by the business. Owners will also be entitled to a credit for any entity-level tax imposed by other states that is determined by CT DRS to be substantially similar to the CT entity tax.
Municipal Property Tax Credit
Municipalities are permitted to issue residential property tax credits to eligible taxpayers who make voluntary irrevocable contributions to “community supporting organizations” approved by the municipality. The credit may not exceed the lesser of the property tax owed or 85% of the contribution.
Rather than adopt the new federal first-year depreciation bonus, individuals receiving income from a pass-through business are required to add back any bonus depreciation amount for property placed in service after September 27, 2017 when calculating their CT adjusted gross income. Taxpayers may then deduct 25% of the add-back in each of the succeeding four years.
Asset Expensing Deduction
The TCJA permits individuals, partnerships, limited liability companies treated as partnerships for federal income tax purposes, and S corporations to treat the cost of qualifying property as a deductible expense rather than a capital expenditure, subject to limitations. CT has not adopted this change. CT requires 80% of the federal deduction added back the first year when calculating CT adjusted income and then deducted 25% per year over the following four years.
Interest Expense Deduction
The federal deduction for business interest is limited by the TCJA to the sum of the taxpayer’s business interest income plus 30% of their adjusted gross income. This limitation will not apply for CT income tax purposes.
Other Items to Note
Need a Copy of Your Previous Return?
You can obtain a copy of your past CT individual and business tax returns for free using the CT Taxpayer Service Center.
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