Maryland Computation of Tax Preference Income Modification

Computation of Tax Preference Income Modification
Tax Year 2023 502TP Computation of Tax Preference Income
MARYLAND
FORM

502TP

2023

COMPUTATION OF TAX
PREFERENCE INCOME
ATTACH TO YOUR TAX RETURN.

Print using blue or black ink only.

First name	

MI	

Last name	

Social Security Number

Spouse's first name	

MI

Last name	

Social Security Number

Who must file: File this form if the total tax preference items (line 2) is more than $10,000 ($20,000 for a joint return).
1. Tax preference items
a. Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1a.
b. Depreciation (pre-1987 Rules) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  b.
c. Intangible drilling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  c.
d. Exclusion for gains on sale of certain small business stock . . . . . . . . . . . . . . . . . . . . . . . . . . .  d.
2. Total tax preference items (Add lines 1a through 1d.)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2.
3. Exclusion. Enter $10,000 ($20,000 for a joint return.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3.
4. Subtract line 3 from line 2 (If less than zero (0) enter zero (0).) . . . . . . . . . . . . . . . . . . . . . . . . . .  4.
5. 	Taxable tax preference items. Multiply line 4 by 50% (.50). Enter this amount on line 5
of Form 502, or line 3 of Form 504, Schedule A or line 19 of Form 505.  . . . . . . . . . . . . . . . . . . . .  5.
GENERAL INSTRUCTIONS
An addition modification is required for certain items of income that are
considered to be of a tax preference nature, as defined in Internal Revenue
Code (IRC) Section 57. The addition is computed by first totaling all the
items of tax preference, then reducing this amount by a specific exclusion
of $10,000 ($20,000 for a joint return). The excess is further reduced by
50%.
WHO MUST FILE
Any individual or fiduciary of an estate or trust with items of tax preference
in excess of $10,000 ($20,000 for a joint return) must complete Form 502TP
and file with the income tax return.
ITEMS OF TAX PREFERENCE
The items of tax preference are those listed below.
Line 1a Depletion:
Calculate the excess of the deduction for depletion allowable under IRC
Section 611 for the tax year over the adjusted basis of the property at the
end of the tax year. Subtract any oil percentage depletion deduction
included in the figure you calculated. Enter the result on line 1a.
The Depletion tax preference item does not apply to you if you are
an independent producer or royalty owner claiming percentage
depletion for oil and gas wells.
Line 1b Depreciation (Pre-1987 Rules):
For tax preference purposes, you must use the straight line method to figure
depreciation on real property for which accelerated depreciation was
determined using pre-1987 rules. Use a recovery period of 19 years for
19-year real property other than recovery property, enter the amount by
which your regular tax depreciation using the pre-1987 rules exceeds the
depreciation allowable using the straight line method. For leased 10-year
recovery property and leased 15-year public utility property, enter the
amount by which your regular tax depreciation exceeds the depreciation
allowable using the straight line method with a half-year convention, no
salvage value and a recovery period of 15 years (22 years for 15-year public
utility property). You must figure the excess depreciation separately for
each property and include on line 1b only positive amounts.
Line 1c Intangible Drilling Costs:
Enter the amount from line 2t of federal Form 6251.
Line 1d Exclusion of Gains on Sale of Certain Small Business Stock:
Enter the amount from line 2h of federal Form 6251.
The federal Form 6251 also includes adjustments to develop alternative
minimum taxable income for federal purposes. These adjustments do not
affect your Maryland tax preference items.
HOW TO FILE
Complete federal Form 6251.
If you have taken a deduction for depletion, or if you have taken depreciation

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on your federal tax return using pre-1987 rules, follow the instructions for
line 1a and/or 1b above. If you have any other tax preference item
referenced in lines 1c through 1d go to Form 6251 to determine the amount
reportable on Form 502TP. If your total tax preference items on line 2 of the
Form 502TP are over $10,000 ($20,000 for joint returns), you must include
these items as an addition to income regardless of whether you are subject
to the Alternative Minimum Tax on your federal return. Taxpayers who file
separate Maryland returns must compute their addition to income on
separate Forms 502TP.
NONRESIDENT AND PART-YEAR RESIDENT INDIVIDUALS
The items of tax preference of nonresident and part-year residents should
include only those items properly allocated to Maryland. Generally, this
includes tax preference items derived from tangible property (real and
personal) permanently located in Maryland (whether the income is derived
directly or indirectly from a trust or estate); tax preference items
attributable to a business, trade, occupation or profession wholly carried on
or carried on both in and out of Maryland and tax preference items derived
from a business wholly carried on or carried on both in and out of Maryland
of which the individual is a partner of a partnership, shareholder of an S
corporation, member of a limited liability company taxed as a partnership,
beneficiary of a business trust taxed as a partnership or proprietor.
If all of the tax preference items reported to the IRS are allocated to
Maryland, then the nonresident or part-year resident may claim the
exclusion of $10,000 for an individual return or $20,000 for a joint return on
line 3. If the tax preference items reported are based on income derived
both in and out of Maryland (income from preference items taxable to
Maryland should be reported on this form (on lines 1a through 1d) by using
separate accounting), then the nonresident or part-year resident may only
claim a partial exclusion on line 3.
The partial exclusion is calculated by using a fraction, with the numerator
being the dollar amount of the tax preference items based on income
taxable in Maryland and the denominator being the total amount of the tax
preference items, multiplied by $10,000 for an individual return or $20,000
for a joint return. Enter the amount of this calculated partial exclusion on
line 3 and continue to follow the form numbered instructions.
SMALL BUSINESS CORPORATIONS
Individual shareholders of small business corporations that have elected to
be S corporations under IRC Section 1362 shall account for the corporation’s
tax preference items as belonging to the individual shareholders. A pro rata
apportionment of the items of tax preference is reportable by each
shareholder on his or her individual return consistent with the method in
which net operating losses are passed through and apportioned among
them for federal purposes.
For more information, visit marylandtaxes.gov or email your question to
[email protected]. You may also call 1-800-638-2937 or from
Central Maryland 410-260-7980.