Conformity to Internal Revenue Code

CONFORMITY TO FEDERAL INTERNAL REVENUE CODE

2005

New Federal Law—Additional Tax Exemptions for Housing Victims of Hurricane Katrina

The Katrina Emergency Tax Relief Act of 2005, signed by the President on Sept. 23, 2005, provides various tax benefits, including exemptions for housing Hurricane Katrina displaced individuals.

The Idaho Legislature has not adopted the provisions of the Katrina Emergency Tax Relief Act of 2005. Generally, Idaho adopts the provisions of the Internal Revenue Code as of Jan.1 each year. The 2006 Legislature will consider conformity with the Internal Revenue Code.

2004

Idaho law conforms to the Internal Revenue Code (IRC) as of Jan. 1, 2005, with some exceptions noted below. Once Idaho conforms to the IRC, it follows the federal effective date of any federal changes adopted.

New Federal Law—General Sales Tax Deduction

The American Jobs Creation Act of 2004, signed by the President on Oct. 22, 2004, allows taxpayers to deduct state and local sales taxes instead of state and local income taxes as itemized deductions on the 2004 Federal Form 1040, Schedule A.

Idaho did not adopt this change to federal law. House Bill 10 requires sales tax claimed as an itemized deduction to be treated the same as income tax. The law requires the sales tax deducted to be added back to Idaho income. Taxpayers should add back the sales tax claimed as an itemized deduction on line 16 of Form 40 or line 37 of Form 43.

2003

Changes to the IRC during 2003 included those made by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law 108-27) and the Military Tax Relief Act of 2003 (Public Law 108-121).

Changes adopted by Idaho as a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003 include the following modifications to IRC Section 179:

Increasing the amount that can be expensed to $100,000 for property placed in service in taxable years beginning in 2003, 2004, and 2005;
Annual indexing for inflation of dollar limitations; and
Allowing off-the-shelf-computer software as an asset qualified for the expensing.

Changes not adopted by Idaho in the Jobs and Growth Tax Relief Reconciliation Act of 2003 include:

Increasing the additional first-year depreciation from 30% to 50% and extending it through Dec. 31, 2004. Idaho does not allow either the 30% or the 50% bonus depreciation.

The Military Tax Relief Act of 2003 provided various tax breaks for U.S. military personnel. These changes were adopted by Idaho and include:

Expanding the ownership and use time period for an exclusion of gain from the sale of a principal residence by members of the uniformed services or the U.S. Foreign Service, effective for sales after May 6, 1997;
Increasing the exclusion of death gratuity payments (which would double to $12,000) from gross income with respect to deceased members of the military, effective for deaths after Sept. 10, 2001;
Allowing an above-the-line income tax deduction for the overnight travel expenses of National Guard and Reserve members, effective for tax years starting after Dec. 31, 2002; and
Extending the Terrorism Tax Relief Act of 2001 to the families of astronauts who die while on a mission.