Fillable Form 500dm - Maryland Decoupling Modification

2012

MARYLAND DECOUPLING

FORM

500DM

MODIFICATION INSTRUCTIONS

General Instructions

an adjustment for these changes. If the net change for these items

reduces taxable income, enter as a negative amount (-).

Purpose of Form

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

Examples of items affected by decoupling are:

• Gain or loss on sale of property

• Passive loss

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

which eliminate the effect of the changes on Maryland and local taxes.

• Recapture of depreciation

• Maryland itemized deductions

This form is used to determine the amount of the required modification.

Line 6 – Net Decoupling Modification

Use of Pro Forma Returns

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

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

is positive, include this amount in the appropriate line of the Maryland

use in completing Form 500DM. In addition to calculating depreciation

tax return being filed. Also enter the appropriate code letter(s) in the

and NOL deductions without the benefits afforded under the federal

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

provisions from which Maryland has decoupled, pro forma returns will

or NOL, or both).

also help to determine other related items that affect Maryland and

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

local income tax liability (e.g., income items, addition and subtraction

modifications, deductions and credits).

appropriate line of the Maryland tax return being filed. Enter the

appropriate code letter(s) in the box(es) provided for the type of

Additional Information

subtraction modification (either depreciation or NOL, or both). See the

For more information regarding these modifications, see Administrative

table at the bottom of Form 500DM for the line numbers and code letters

Release 38 which is available at or from

to use. Note: there is no separate code for line 3 as this decoupling

any branch office.

would not occur if there was no entry on line 4, and therefore, code dm

Specific Instructions

would be used for multiple decoupling.

Column 1 – Federal Return as Filed

Infrequently, the only decoupling that may exist on the return may

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

be for “Other Changes” . In this case, use the code for the decoupling

federal return which include the impacts of the Decoupled Provisions.

issue that gave rise to the “Other Changes.”

Column 2 – Federal Return Without Decoupled Provisions

Line 7 – Decoupling from Pass-Through Entity

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

Enter any decoupling modification resulting from income received from

been reported on the federal return without regard to the Decoupled

a pass-through entity on line 7 and use code dp on the member’s return

Provisions.

as an addition or subtraction. If line 7 is positive, include this amount

Column 3 – Change – increase/decrease (-)

as an addition on the appropriate line for addition on the Maryland tax

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

return being filed. If line 7 is negative, include this amount as a positive

in Column 1. Enter in Column 3.

number on the appropriate line for subtraction on the Maryland tax

return being filed. See Income from a PTE below.

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

in Column 2. Enter in Column 3.

Credits

For Maryland income tax credits affected by the Decoupling Provisions,

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

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

(calculated before and after application of the Decoupled Provisions)

forma return without the Decoupling Provisions.

that would affect taxable income.

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

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

original return and the tax liability to the other state and/or Maryland

minus sign (-) in front of the number.

changes as a result of the treatment of decoupling provisions in either

Line 1 – Depreciation Deductions

state, a revised Form 502CR must be completed using the Maryland

Use line 1 only for the depreciation expense deductions.

and the other state’s returns as filed, including all amendments and

modifications.

Line 2 – NOL Deductions

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

Pass-Through Entities (PTE)

deductions as follows: for a corporation, the deduction may not exceed

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

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

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

exceed the federal modified taxable income as determined on federal

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

Form 1045, Schedule B. If more than one loss year, attach a schedule

Form 510 and the PTE must provide each partner, shareholder or member

providing the amounts on line 2 applicable to each loss year.

a statement showing their share of the decoupling modification.

Line 3 – Deferred Deduction for Original Issue Discount

Income from a PTE

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

Each partner, shareholder or member that has a decoupling modification

decoupling with the federal deferral of deduction for original issue

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

discount issued in debt for debt exchanges, unless the deduction was

modification from the PTE on line 7 of Form 500DM. Use code dp under

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

other additions or subtractions on the return being filed by the member.

a pass-through entity, use line 7. On line 7, partners, shareholders

(Do not include in lines 1 through 4). Also use this amount to adjust

or members should report only their share of the deferred deduction.

the income from the PTE on the pro forma federal return to determine

In those years when the Internal Revenue Code permits the ratable

if other related changes exist. Other related changes would be entered

inclusion of this deduction, line 3 will reflect an addition to income.

on line 5 of Form 500DM. Do not include any decoupling modification

from a PTE on the Maryland pro forma return.

Line 4 – Deferred Discharge of Indebtedness Income

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

Attachment of Forms

decoupling with the federal deferral of income arising from business

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

indebtedness discharged by reacquisition of a debt instrument, unless

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

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

this form are not to be filed with the Comptroller or the IRS, but

deferred by a pass-through entity, use line 7. On line 7, partners,

should be retained with your tax records.

shareholders or members should report only their share of the deferred

• Amended Return Attach the completed Form 500DM, schedules

income. In those years when the Internal Revenue Code requires

and pro forma returns to the amended return to be filed.

the ratable inclusion of this income, line 4 will reflect a subtraction to

income.

For questions concerning Form 500DM contact:

Revenue Administration Division

Line 5 – Other Changes

110 Carroll Street

Decoupling may also affect other items included in federal adjusted

Annapolis, Maryland 21411-0001

gross income and allowable itemized deductions, as well as Maryland

410-260-7980 or

addition and subtraction modifications. Because these items also affect

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

Maryland taxable income, the decoupling modification must include

COM/RAD-24 12-49

Form 500dm - Maryland Decoupling Modification - 2012 Page 2

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