Fillable Form 500dm - Maryland Decoupling Modification

MARYLAND DECOUPLING

INSTRUCTIONS FOR

PAGE 2

FORM 500DM

MODIFICATION

2011

General Instructions

income, the decoupling modification must include an adjustment for these

changes. If the net change for these items reduces taxable income, enter

Purpose of Form

as a negative amount (-).

Maryland has decoupled from certain federal provisions, as listed at the top

Examples of items affected by decoupling are:

of Form 500DM, by enacting addition and subtraction modifications which

eliminate the effect of the changes on Maryland and local taxes. This form is

• Gain or loss on sale of property

used to determine the amount of the required modification.

• Recapture of depreciation

• Passive loss

Use of Pro Forma Returns

Separate (pro forma) federal and Maryland returns must be prepared for use

• Maryland itemized deductions

in completing Form 500DM. In addition to calculating depreciation and NOL

Line 6 – Net Decoupling Modification

deductions without the benefits afforded under the federal provisions from

Net the amounts from lines 1 through 5 and enter on line 6. If line 6 is positive,

which Maryland has decoupled, pro forma returns will also help to determine

include this amount in the appropriate line of the Maryland tax return being

other related items that affect Maryland and local income tax liability (e.g.,

filed. Also enter the appropriate code letter(s) in the box(es) provided for the

income items, addition and subtraction modifications, deductions and credits).

type of addition modification (either depreciation or NOL, or both).

Additional Information

If line 6 is negative, include this amount as a positive number in the appropriate

For more information regarding these modifications, see Administrative Release

line of the Maryland tax return being filed. Enter the appropriate code letter(s) in

38 which is available at or from any office of the

the box(es) provided for the type of subtraction modification (either depreciation

Comptroller.

or NOL, or both). See the table at the bottom of Form 500DM for the line

Specific Instructions

numbers and code letters to use. Note: there is no separate code for line 3

Column 1 – Federal Return as Filed

as this decoupling would not occur if there was no entry on line 4, and dm, the

Column 1 (lines 1 through 4) is used for the amounts reported on the federal

code for multiple decoupling would be used.

return which include the impacts of the Decoupled Provisions.

Infrequently, the only decoupling that may exist on the return may be for “Other

Column 2 – Federal Return Without Decoupled Provisions

Changes” . In this case, use the code for the decoupling issue that gave rise

Column 2 (lines 1 through 4) is for the amounts which would have been

to the “Other Changes.”

reported on the federal return without regard to the Decoupled Provisions.

Line 7 – Decoupling from Pass-Through Entity

Column 3 – Change – increase/decrease (-)

Enter any decoupling modification resulting from income received from a pass-

L ines 1 and 2 – Subtract the amount in Column 2 from the amount in Column

through entity on line 7 and use code dp on the member’s return as an addition

1. Enter in Column 3.

or subtraction. See Income from a PTE below.

Lines 3 and 4 – Subtract the amount in Column 1 from the amount in Column

Credits

2. Enter in Column 3.

For Maryland income tax credits affected by the Decoupling Provisions, enter

on the return to be filed credits as calculated on the Maryland pro forma return

Line 5 is for the change to taxable income in other related items (calculated

without the Decoupling Provisions.

before and after application of the Decoupled Provisions) that would affect

taxable income.

Note: If a credit for a tax paid to another state was claimed on the original return

and the tax liability to the other state and/or Maryland changes as a result of

I f the change decreases taxable income, enter the amount with a minus sign

the treatment of decoupling provisions in either state, a revised Form 502CR

(-) in front of the number.

must be completed using the Maryland and the other state’s returns as filed,

Line 1 – Depreciation Deductions

including all amendments and modifications.

Use line 1 only for the depreciation expense deductions.

Pass-Through Entities (PTE)

Line 2 – NOL Deductions

If the entity is a PTE (partnership, S-corporation, limited liability company or

Use line 2 for NOL deductions. For Columns 1 and 2, limit the deductions

business trust), no adjustment is made on the PTE’s Maryland income tax

as follows: For a corporation, the deduction may not exceed the federal

return (Form 510). However, Form 500DM must be submitted with Form 510

taxable income. For all others, the deduction may not exceed the federal

and the PTE must provide each partner, shareholder or member a statement

modified taxable income as determined on federal Form 1045, Schedule B.

showing their share of the decoupling modification.

If more than one loss year, attach a schedule providing the amounts on line

Income from a PTE

2 applicable to each loss year.

Each partner, shareholder or member that has a decoupling modification from

Line 3 – Deferred Deduction for Original Issue Discount

a PTE must also complete Form 500DM. Enter the decoupling modification

Use line 3 to reflect the subtraction to income resulting from Maryland’s

from the PTE on line 7 of Form 500DM. Use code dp under other additions or

decoupling with the federal deferral of deduction for original issue discount

subtractions on the return being filed by the member. (Do not include in lines

issued in debt for debt exchanges, unless the deduction was deferred by a

1 through 4). Also use this amount to adjust the income from the PTE on the

pass-through entity. If the deduction was deferred by a pass-through entity,

pro forma federal return to determine if other related changes exist. Other

use line 7. On line 7, partners, shareholders or members should report only

related changes would be entered on line 5 of Form 500DM. Do not include

their share of the deferred deduction. In those years when the Internal

any decoupling modification from a PTE on the Maryland pro forma return.

Revenue Code permits the ratable inclusion of this deduction, line 3 will

Attachment of Forms

reflect an addition to income.

• Original Return Attach the completed Form 500DM to the Maryland

Line 4 – Deferred Discharge of Indebtedness Income

income tax return to be filed. Pro forma returns used to complete this form

Use line 4 to report the addition to income resulting from Maryland decoupling

are not to be filed with the Comptroller or the IRS, but should be retained

with the federal deferral of income arising from business indebtedness

with your tax records.

discharged by reacquisition of a debt instrument, unless the income was

• Amended Return Attach the completed Form 500DM, schedules and

deferred by a pass-through entity. If the income was deferred by a pass-

pro forma returns to the amended return to be filed.

through entity, use line 7. On line 7, partners, shareholders or members

should report only their share of the deferred income. In those years when

For questions concerning Form 500DM contact:

the Internal Revenue Code requires the ratable inclusion of this income, line

Revenue Administration Division

4 will reflect a subtraction to income.

110 Carroll Street

Annapolis, Maryland 21411-0001

Line 5 – Other Changes

410-260-7980 or toll-free at 1-800-MDTAXES or (410-638-2937)

Decoupling may also affect other items included in federal adjusted gross

income and allowable itemized deductions, as well as Maryland addition and

subtraction modifications. Because these items also affect Maryland taxable

COM/RAD-24 11-49

Form 500dm - Maryland Decoupling Modification - 2011 Page 2

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