Instructions For Arizona Form 140 - Resident Personal Income Tax Return

Form 140

a subtraction on line C22. To figure how much you should

Line B10 - I.R.C. § 179 Expense in Excess

subtract, see the instructions for line C22.

of Allowable Amount

Line B9 - Medical Savings Account (MSA)

Enter the amount of IRC § 179 expense deducted on the

Distributions

federal return that exceeds $25,000. If you make an entry

here, you should also take a subtraction on line C26 for a

For information on Arizona's MSA provisions, see the

portion of the amount entered here. To figure how much you

department's MSA brochure, Pub 542.

should subtract, see the instructions for line C26.

You must add amounts received from an MSA here if any of

the following apply.

Line B11 - Other Additions to Income

1 - You Withdrew Funds from Your MSA for Other

Use line B11 if any of the special circumstances below apply.

Than Qualified Expenses

Attach your own schedule to the back of your return

You must make an entry here if all of the following apply.

explaining any amounts entered here.

1. You withdrew money from your MSA during 2011.

You may either add or subtract items A through D below

(line B11 or C29, respectively) depending on your situation.

2. You did not use the amount withdrawn to pay qualified

medical expenses.

A. Pension Adjustments

3. You did not have to include the withdrawal as income

Use this adjustment if both of the following apply.

on your federal income tax return.

1. Arizona taxed your pension for years before 1979.

Enter the amount withdrawn.

2. You reported that pension on your federal return using

2 - Deceased Account Holder Where the Named

the percentage exclusion method.

Beneficiary is Not the Decedent's Surviving Spouse

Do not use this adjustment if either of the following apply.

You must make an entry here if all of the following apply.

1. You reported your pension income as fully taxable on

1. The account holder died during the year.

your federal return.

2. You are the named beneficiary of the decedent's MSA.

2. You reported your pension income on your federal

return under the "three-year-rule".

3. You are not the decedent's surviving spouse.

Pension Adjustment Worksheet - Line B11

You did not have to include the value of the MSA as

Follow these steps to figure the adjustment.

income on your federal income tax return.

(Keep this worksheet for your records.)

In this case, the MSA ceased to be an MSA. Enter the fair

1. Your contribution to annuity.

market value of the MSA as of the date of death, less the amount

2. Pension amount received in prior

of MSA funds used within one year of the date of death, to pay

years.

the decedent's qualified medical expenses. You can reduce the

3. Remainder of cost (line 1 minus

fair market value by only those expenses paid from the MSA.

line 2 but not less than zero).

If you pay additional medical expenses for the decedent from

Pension amount received this year.

the MSA after you file, you may file an amended return to

5. Subtract line 3 from line 4 (but not

further reduce the fair market value of the MSA.

less than zero).

6. Enter the pension amount taxable

3 - Decedent's Final Return and No Named MSA

on your federal return.

Beneficiary

7. Subtract line 6 from line 5.

Make an entry here if all of the following apply.

If line 7 is more than zero, enter the amount on line 7 as an

1. The account holder died during the year.

addition to income. Enter the addition on line B11.

If line 6 is more than line 5, enter the difference as a

2. There is no named MSA beneficiary.

subtraction from income. Enter the subtraction on line C29.

3. This is the decedent's final return.

4. The value of the MSA did not have to be included on

B. Married Persons Filing Separate Returns

the decedent's final federal income tax return.

If you file a separate Arizona return, you must report the

In this case, the MSA ceases to be an MSA. Enter the fair

following income on that return.

market value of the MSA as of the date of death. This rule



one-half of the community income from all sources.

applies in all cases in which there is no named beneficiary,



all of your separate income.

even if the surviving spouse ultimately obtains the right to

If you and your spouse file a joint federal return but separate

the MSA assets.

Arizona returns, you must make sure that each separate return

NOTE: The following are not withdrawals. Do not enter

reflects the correct income. If you begin your Arizona return

any of the following:

with only the income that you earned during the year, you



Amounts from the MSA used to pay qualified medical

will have to adjust this income.

expenses.

If you file separate federal returns, each of your federal returns



A qualified return of excess contributions.

should already reflect the correct income. Since your separate



A qualified rollover.

Arizona returns will begin with the federal adjusted gross



The fair market value of an MSA received by a surviving

income, you will not have to adjust your income.

spouse who was the deceased account holder's named

If you have to adjust your income, attach a schedule showing

beneficiary.

how you figured your adjustment.

For more information about the above items, see the

department's MSA brochure, Pub 542.

Instructions For Arizona Form 140 - Resident Personal Income Tax Return - 2011 Page 7

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