Deductions

Details

A deduction is available for Career Scholarship Account (CSA) program grants received and used toward

qualified expenses.

Who is Eligible?

An individual who received a distribution from a career scholarship account and that distribution is included in your federal adjusted gross income. However, you cannot claim this deduction if the distribution was not included in your federal adjusted gross income.

Additional Forms

Schedule 2, Schedule C

Details

If you received a civil service pension (nonmilitary*) and are at least 62 years of age, then you may be eligible for up to a $16,000 deduction. Beginning with tax year 2015, a surviving spouse (no minimum age requirement) may be eligible to claim the deduction.
For each qualifying individual, the deduction is limited to:

• the lesser of the amount of taxable civil service annuity income included in federal adjusted gross income or $16,000 and
• less all amounts of Social Security income and tier 1 Railroad Retirement income (issued by the Railroad Retirement Board) received by the qualifying individual (as reported on Form 1040, line 20a, or Form 1040A, line 14a).

Example: The taxable amount of your civil service annuity is $6,000. You received $1,200 in Social Security income. You are age 67.

*See Military service deduction: Active, reserve and retirement pay for information about the taxability of military pension income.

How to figure your deduction

Who is eligible?

You may qualify if your federal form includes federal civil service annuity income and you are at least 62 at the end of the tax year or a surviving spouse.

Additional Forms

Schedule 2, Schedule C

To qualify for this deduction you must have:

• Been permanently and totally disabled at the time of your retirement;
• Retired on disability before the end of the year; and
• Received disability retirement income in the tax year.

If you meet these requirements, view Schedule IT-2440.

Details

Certain areas within Indiana have been designated as enterprise zones. These zones are established to encourage investment and job growth in distressed urban areas.

If you lived in and were an employee in one of these zones, and worked for a qualified employer in that zone, you may be eligible to claim a deduction. Your employer will provide you with a form IT-40QEC if you're eligible to claim this deduction.

If your employer provided the form IT-40QEC to you, your deduction will be one-half of the earned income shown on that form, or $7,500, whichever is less. Make sure to keep the IT-40QEC with your records as the department may request it at a later date.

Who is eligible?

Your employer will provide for IT-40QEC if you work in an enterprise zone. You must both live and work in an enterprise zone to be eligible.

Additional Forms

Schedule 2, Schedule C

Details

You might be able to take this deduction if you lived in Indiana and:

• Received Medicaid payments;
• Were not living at home; and
• Were receiving care in a hospital, skilled nursing facility, an intermediate care facility, licensed county home, licensed boarding or residential home, or a certified Christian Science facility.*

If you meet the above requirements, see the instructions for Schedule 2, line 11 in the individual income tax booklet to see if you're eligible to claim the deduction and to help you figure it.

*An eligible Christian Science facility must be listed with and certified by the Commission for Accreditation of Christian Science Nursing Organizations/Facilities, Inc.

Who is eligible?

Any Medicaid recipients who are living in a hospital, skilled nursing facility, intermediate care facility, licensed county home, licensed boarding or residential home, or a Certified Christian Science facility.

Additional Forms

Schedule 2, Schedule C

Details

You may take a deduction for the Indiana portion of the federal net operating loss deduction (NOL) you added back on line 2 of Schedule 1 (This will be a net operating loss deduction from an earlier year(s) carried forward to 2017.). Write the amount you deduct as a positive figure.

Note: It is possible to have an Indiana NOL without also having a federal NOL. See Schedule IT-40NOL for more information.

Who is eligible?

You may take this deduction for the Indiana portion of the federal net operating loss deduction (a net operating loss from an earlier year carried forward) or if there is a state-only net operating loss.

Additional Forms

IT-40NOL

Details

Indiana has a Long Term Care Insurance Program, which is an innovative partnership between the State of Indiana and private long-term care insurance companies. The premiums paid for this policy are eligible for a deduction. The Indiana Partnership policy will have the following box of information on the outline of coverage, the application, or on the front page of the policy:

This policy qualifies under the Indiana Long Term Care Program for Medicaid asset protection. This policy may provide benefits in excess of the asset protection provided in the Indiana Long Term Care Program.

Learn more about the Long Term Car Insurance Program.

Claim the deduction on your form IT-40 Schedule 2, or IT-40PNR Schedule C.

Who is eligible?

Anyone paying premiums for Indiana partnership long term care insurance.

Additional Forms

IT-40

Details

If you've included any interest from U.S. government obligations on your Indiana tax return, you're eligible for a deduction. Examples of U.S. government obligations include U.S. Savings Bonds, U.S. Treasury Bills and U.S. Government Certificates. This interest is usually reported on federal Schedule B. Interest income reported from a trust, estate, partnership or S corporation that is from the U.S. government obligations is also deducted.

Who is eligible?

Any income that is a direct obligation of the U.S. government such as U.S. savings bonds, U.S. Treasury bills and certificates.

Additional Forms

Schedule 2, Schedule C

Details
For 2022 and later, the deduction is equal to the entire amount of military retirement income and/or survivor’s benefits. See the IT-40 instruction booklet for more information about these deductions. See the IT-40 instruction booklet for more information about these deductions.

Who is eligible?
Anyone who reports military retirement income and/or survivor's benefits is eligible.

Additional Forms
Schedule 2, Schedule C

Details

You are eligible to take a deduction if the income you report on your income tax return includes active or reserve military pay.
Also, if you are retired from the military or are the surviving spouse of a person who was in the military, you may be able to take this deduction if:

• You were at least 60 years of age by the end of the year;
• You were receiving military retirement or survivor's benefits during the year; AND
• The total benefits received as retirement income were reported on your federal return.

This deduction is equal to the actual amount of military income received (i.e. military pay, retirement pay, and/or survivor's benefits) or $5,000, whichever is less. If both you and your spouse received military income, you may each claim the deduction for a maximum of $10,000.
Note: Military income earned while in a combat zone may be exempt (not taxed) on your federal income tax return. If that income is exempt on your federal income tax return, then it will also be exempt (not taxed) for Indiana income tax purposes. Since Indiana isn't taxing this income, your combat zone income is not eligible for a deduction.

Who is eligible?

Anyone who has income that may include active or reserve military pay.

Additional Forms

Schedule 2, Schedule C

Details

There is a deduction for certain members of the reserve components of the Army, Navy, Air Force, Coast Guard, Marine Corps or the Merchant Marine, or a member of the Indiana Army National Guard or the Indiana Air National Guard.

A deduction is available for the income received as a result of service on involuntary orders during the period the above members were deployed and mobilized for full-time service, or during the period the above member's Indiana National Guard unit was federalized. See instructions in the IT-40 Instruction booklet for more information.

Who is eligible?

A member of the reserve components of the Army, Navy, Air Force, Coast Guard, Marine Corps or Merchant Marine or a member of the Indiana Army National Guard or Indiana Air National Guard may be eligible.

Additional Forms

Schedule 2, Schedule C

Details
You may deduct student loan interest payments to the extent the interest was paid by your employer and required to be added back to Indiana adjusted gross income.

Who is Eligible?
Certain individuals who are required to add back employer paid student loan payments.

Additional Forms
Schedules 2 and C

Details
You may deduct an amount paid from Indiana education scholarship accounts for qualifying expenses, but only to the extent the payment is included in federal gross income.

Who is Eligible?
Individuals who received an annual grant amount distributed to their Indiana education scholarship account that is used to pay for qualified expenses.

Additional Forms
Schedule 2, Schedule C

Details

You may be eligible for a deduction based on education expenditures paid for each dependent child who is enrolled in a private school or is homeschooled.

• Your dependent child must be eligible to receive a free elementary or high school education in an Indiana school corporation;
• You must be eligible to claim the child as a dependent on your federal tax return; and
• The child must be your natural or adopted child, if not, you must have been awarded custody of the child in a court proceeding making you the court appointed guardian or custodian of the child.

Who is eligible?

If you have education expenditures for each dependent child who is enrolled in a private school or homeschooled you may be qualified for a $1,000 deduction per qualified child.

Additional Forms

Schedule 2, Schedule C

Details

Some of the income from qualified patents included in federal taxable income may be exempt from Indiana adjusted gross income tax. A qualified patent is a utility patent or a plant patent issued after December 31, 2007, for an invention resulting from a development process conducted in Indiana. The term does not include a design patent. You must maintain the completed Schedule IN-PAT with your records as the department can require you to provide it at a later date.

Who is eligible?

Anyone with a qualified patent, that has federal taxable income from a qualified patent may be exempt from Indiana adjusted gross income tax.

Additional Forms

IN-PAT

Details

Benefits issued by the U.S. Railroad Retirement Board are not taxable by Indiana. Deduct unemployment and/or sick pay benefits issued by the U.S. Railroad Retirement Board on this line if:

• You included these benefits as taxable income on your federal tax return, and
• You did not already deduct these benefits on Schedule 2, lines 5 and/or 6.

Do not include any supplemental sick pay benefits on this line. Make sure to keep the statements (such as Form 1099G) issued by the U.S. Railroad Retirement Board as the department may request them at a later date.

Who is eligible?

If you were issued benefits by the U.S. Railroad Retirement Board you may be eligible.

Additional Forms

Schedule 2, Schedule C

Details

If you included 'recovered' itemized deductions as other income on your federal income tax return, then that amount should be deducted on your Indiana income tax return.
A recovered state tax refund should be reported on its own line called 'State tax refund reported on federal return' on the deduction schedule (IT-40 Schedule 2, or IT-40PNR Schedule C).

All other recovered itemized deductions should be reported on the line called 'Recovery of deductions' on the deduction schedule (IT-40 Schedule 2, or IT-40PNR Schedule C).

Who is eligible?

Anyone who completed the "other income" line on the federal Form 1040/1040-SR.

Additional Forms

Schedule 2, Schedule C

Details

You may be able to deduct up to $3,000 ($1,500 if married filing separately) of the rent paid on your Indiana home.
You may be able to take this deduction if:

• You paid rent on your principal place of residence, and
• The place you rented was subject to Indiana property tax.

Your "principal place of residence" is the place where you have your true, fixed, permanent home and where you intend to return after being absent.
Rent paid for summer homes or vacation homes is not deductible.
You cannot claim the renter's deduction if the rental property was exempt from Indiana property tax. Examples of this type of property are:

• Government owned housing;
• Property owned by a nonprofit organization;
• Student housing;
• Property owned by a cooperative association; and
• Property located outside of Indiana.

How much rent can I take off? You can deduct up to $3,000 or the amount of rent paid, whichever is less.
Example: Emily paid $4,800 in rent on her principal residence. She will claim a $3,000 renter's deduction.
Example: Bill paid $400 in rent at his first apartment, moved to another location and paid $3,300 for the remainder of the year. His deduction will be limited to $3,000 even though he paid $3,700 altogether.

Who is eligible?

Anyone who paid rent on your principal place of residence AND rented a place that was subject to Indiana property tax.

Additional Forms

Schedule 2, Schedule C

Details

You may be able to claim a deduction for the repayment of previously taxed income, also known as “claim of right,” if:

• You reported the income to Indiana in a previous year,
• You repaid some or all of it this year, and
• For federal tax purposes, you are eligible to:
  • claim the repayment as an itemized deduction, or
  • claim a credit based on the repayment amount.

Example: Ryan was a full-year Indiana resident in 2018, and received $1,700 unemployment compensation that year. He reported the full amount on his 2018 federal and Indiana income tax returns. Early in 2019 Ryan found out he had to repay $345 of that compensation; he repaid it that June. For 2019 federal tax purposes he is eligible to claim an itemized deduction* based on the $345 amount repaid. Ryan is eligible to claim the $345 amount as a repayment of previously taxed income as a deduction on his 2019 state tax return.
*In this example Ryan is not required to claim itemized deductions when figuring his federal taxable income; he may have opted to use the standard deduction instead. Regardless, he is still eligible to claim the deduction on his state tax return.

Important: Indiana does not tax Social Security income. Therefore, if you repaid some Social Security income during the year, it is not eligible for a deduction based on being repaid (because Indiana did not previously taxed this income).
See the IT-40 instruction booklet for more information about the Repayment of Previously Taxed Income.

Who is eligible?

Anyone who has:

• reported income to Indiana in a previous year
• repaid some or all of it this year AND
• for federal tax purposes is eligible to claim the repayment as an itemized deduction or claim a credit based on the repayment amount

Additional Forms

Schedule 2, Schedule C

Details

You may be able to deduct up to $2,500 ($1,250 if married filing separately) of the Indiana property taxes paid on your principal place of residence.

Who is eligible?

Anyone who pays property taxes on their principal place of residence in Indiana.

Additional Forms

Schedule 2, Schedule C

Details

A deduction is available to allow the deduction for the portion of small employer health insurance premiums that is disallowed for federal purposes as a result of claiming the credit under IRC section 45R.

Who is Eligible?

If you:

• Claimed a federal tax credit for small employer health insurance premiums under IRC section 45R; and
• Would have been permitted a deduction for those premiums except for the disallowance under IRC section 280C(h),

you are permitted a deduction for the portion of the premiums disallowed for federal purposes.

Additional Forms

Schedule 2, Schedule C

Details

Indiana does not tax Social Security and railroad retirement benefits issued by the Railroad Retirement Board. All Social Security benefits and/or railroad retirement benefits (issued by the Railroad Retirement Board) included in the income taxed on your federal income tax return should be deducted on your Indiana tax return.

Who is eligible?

Anyone who received Social Security income and/or railroad retirement benefits that are issued by the U.S. Railroad Retirement Board and included in federal adjusted gross income.

Additional Forms

Schedule 2, Schedule C

Details

A deduction is available to permit a current-year deduction for specified research and experimental expenses otherwise required to be amortized for federal tax purposes.

Who is Eligible?

If you claimed a federal income tax deduction for specified research and experimental expenses that are required to be amortized for federal purposes pursuant to IRC section 174.

Additional Forms

Schedule 2, Schedule C