Section 2: Gross income, adjusted gross income and taxable income defined; classes
[Text of section applicable as provided by 2021, 9, Secs. 8, 12 and 26. See 2021, 9, Secs. 28 and 31.]
Section 2. (a) Massachusetts gross income shall mean the federal gross income, modified as required by section six F, with the following further modifications:—
(1) The items to be added thereto are:—
(A) Interest on governmental obligations excluded under section one hundred and three of the Code, other than interest from any such obligation issued by the commonwealth, any political subdivision thereof, or any agency or instrumentality of either of the foregoing, which is exempt from taxation under any provision of law.
[There is no subparagraph (B).]
(C) Earned income from foreign sources excluded under section nine hundred and eleven of the Code.
[There are no subparagraphs (D) or (E).]
(F) Amounts included in or considered to be Massachusetts gross income under any other provision of this chapter.
(G) Amounts excluded under section one hundred and twenty-eight of the Code.
[There is no subparagraph (H).]
(I) Amounts contributed on behalf of the taxpayer pursuant to subdivision (10) of section twenty-two of chapter thirty-two or pursuant to paragraph (i) of section sixty-five D of said chapter thirty-two or pursuant to section forty of chapter fifteen A and not included in the federal gross income; provided, however, that nothing herein shall be deemed to impair the status for tax purposes of any such amount as provided under section nineteen of chapter thirty-two, or subparagraph (4) of paragraph (a) of Part B of section three of chapter sixty-two.
(2) The items to be deducted therefrom are:—
(A) Interest on obligations of the United States exempt from state income taxation to the extent included in federal gross income, and dividends received from a regulated investment company qualified under section eight hundred and fifty-one of the Federal Internal Revenue Code to the extent such dividends are attributable to interest on obligations of the United States exempt from state income taxation and are so identified in a written notice mailed to the shareholders of such regulated investment company not later than sixty days after the close of its tax year.
[There is no subparagraph (B).]
(C) Income received from any trustee or other fiduciary, which income is taxable under this chapter to the trustee or other fiduciary.
(D) Dividends received from a corporate trust subject to taxation under section 8, as in effect on December 31, 2008, to the extent that they are derived from earnings and profits previously taxed to the trust under said section 8, but only to the extent that the trust properly filed returns and paid all taxes due.
(E) Income from any contributory annuity, pension, endowment or retirement fund of the United States government or the commonwealth or any political subdivision thereof including the optional retirement system established by section forty of chapter fifteen A, to which the employee has contributed, or any income received from the United States government as retirement pay for a retired member of the Uniformed Services of the United States, as defined in 10 U.S.C. section 1072, regardless of whether the retiree contributed to the retirement system, or any income received from the United States government as survivorship benefits under 10 U.S.C. sections 1431 to 1460, inclusive.
(F) Income from annuity, stock bonus, pension, profit-sharing, annuity or deferred-payment plans or contracts described in sections four hundred and three (b) or four hundred and four of the Code or individual retirement accounts, individual retirement annuities or retirement bonds described in sections four hundred and eight or four hundred and nine of the Code, until an aggregate amount of such income has been deducted under this subparagraph equal to the aggregate of all amounts previously subjected to taxation under this chapter; provided, that this subparagraph shall not apply to income from the optional retirement system established by section forty of chapter fifteen A.
[There is no subparagraph (G).]
(H) Social security benefits included in federal gross income under section eighty-six of the Code.
(I) Dividends received from a regulated investment company qualified under section eight hundred and fifty-one of the Federal Internal Revenue Code which are exempt interest dividends under section eight hundred and fifty-two of said Code but only to the extent of the portion of such exempt interest dividends directly attributable to interest from obligations issued by the commonwealth, any political subdivision thereof, or any agency or instrumentality of either of the foregoing, that is exempt from taxation under any provision of law, and provided that such portion is identified in a written notice mailed to the shareholders of such regulated investment company not later than sixty days after the close of its tax year.
(J) Dividends received from a regulated investment company qualified under section eight hundred and fifty-one of the code which are capital gain dividends under section eight hundred and fifty-two of said Code but only to the extent of the portion of such capital gain dividends attributable to gain from obligations issued by the commonwealth, any political subdivision thereof, or any agency of instrumentality of either of the foregoing, that is exempt from taxation under any provision of law, and provided such portion is identified in a written notice to the shareholders of such regulated investment company not later than sixty days after the close of its tax year.
(K) The following items, to the extent included in federal gross income:
(i) distributions or payments, including interest, if any, made to an individual because of his status as a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime or as an heir of such victim and
(ii) income, attributable to, derived from or in any way related to assets stolen from, hidden from, or otherwise lost to Germany or any other Axis regime immediately prior to, during, and immediately after World War II, including but not limited to, payments of compensation or reparation, and interest on and the proceeds of insurance under policies issued to a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime by European insurance companies immediately prior to and during World War II; provided, however, this deduction from federal gross income shall not apply to assets acquired with such assets or with the proceeds from the sale of such assets; provided, further, this paragraph shall only apply to a taxpayer who was the first recipient of such assets after their recovery and who was a victim of persecution for racial or religious reasons by Nazi Germany or any other Axis regime or as an heir of such a victim.
(L) Amounts, whether in a single sum or otherwise, paid by an employer by reason of the death of an employee who is a specified terrorist victim, as defined in section 25 of this chapter; provided, however, subject to such rules as the commissioner may prescribe from time to time, that this section shall not apply to (i) amounts which would have been payable after death if the individual had died other than as said specified terrorist victim; and (ii) incidental death benefits paid from a plan described in the provisions of section 401(a) of the Internal Revenue Code and exempt from tax under the provisions of section 501(a) of the Internal Revenue Code. For purposes of this section, the term ''employee'' shall include a self-employed individual as defined under section 401(c)(1) of the Internal Revenue Code.
(M) Any amount which, but for this section, would be included in gross income by reason of the discharge, in whole or in part, of indebtedness of any taxpayer if the discharge is by reason of the death of an individual incurred as the result of the terrorist attacks against the United States on September 11, 2001, or as the result of illness incurred as a result of an attack involving anthrax occurring on or after September 11, 2001, and before January 1, 2002.
(N) Any amount received by an individual as a qualified disaster relief payment.
(i) For purposes of this section, the term ''qualified disaster relief payment'' means an amount paid to or for the benefit of an individual (a) to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, (b) to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation, of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster, (c) by a person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a qualified disaster, or (d) if such amount is paid by the United States or a state or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
(ii) For purposes of this section, the term ''qualified disaster'' means (a) a disaster which results from a terroristic or military action as defined in section 692(c)(2) of the Internal Revenue Code as in effect for the current taxable year, (b) a Presidentially declared disaster as defined in section 1033(h)(3) of the Internal Revenue Code as in effect for the current taxable year, (c) a disaster which results from an accident involving a common carrier, or from any other event, which is determined by the commissioner to be of a catastrophic nature, or (d) with respect to amounts described in subclause (d) of clause (i) of this subparagraph, a disaster which is determined by the applicable United States or state authority to warrant assistance from the United States or a state or agency or instrumentality thereof.
(iii) This section shall not apply with respect to any individual identified by the attorney general of the United States to have been a participant or conspirator in a terroristic action as specified in section 25 of this chapter or a representative of such individual.
(O) Any amount received as payment under section 406 of the Air Transportation Safety and System Stabilization Act, so-called.
(P) Amounts received by an individual as disability income attributable to injuries incurred as a direct result of a terroristic or military action as defined in section 692(c)(2) of the Internal Revenue Code in effect for the current taxable year.
(Q) If an employee participates in an employer-provided health insurance plan, any amount which, but for this section, would be included in gross income of the employee by reason of coverage under the plan of any person other than the employee, to the extent such coverage is mandated by law.
[Subparagraph (R) of paragraph (2) of subsection (a) effective for taxable years beginning on or after January 1, 2022. See 2022, 126, Secs. 197 and 189.]
(R) To the extent not otherwise excluded from gross income, in whole or in part, income attributable to the discharge of:
(i) any loan provided expressly for postsecondary education, regardless of whether provided through the educational institution or directly to the borrower; provided, however, that the loan was made, insured or guaranteed by: (A) the United States or an instrumentality or agency thereof; (B) a state, territory or possession of the United States, the District of Columbia or any political subdivision thereof; or (C) an eligible educational institution as defined in section 25A(f)(2) of the Code;
(ii) any private education loan as defined in 15 U.S.C. 1650(a)(8);
(iii) any loan made by any educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on; provided, however, that the loan was made pursuant to: (A) an agreement with any entity described in clause (i) or any private education lender, as defined in said 15 U.S.C. 1650(a)(7), under which the funds from which the loan was made were provided to such educational organization; or (B) a program of the educational organization that is designed to encourage students to serve in occupations with unmet needs or in areas with unmet needs; and provided further, that the service provided by the students or former students are for, or under the direction of, a governmental unit or an organization described in section 501(c)(3) of the Code and are exempt from tax under section 501(a) of the Code; or
(iv) any loan made by an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on or by an organization exempt from tax under section 501(a) of the Code to refinance a loan to an individual to assist the individual in attending any such educational organization; provided, however, that the refinancing loan shall be pursuant to a program of the refinancing organization that complies with the requirements of subclause (B) of clause (iii); and provided further, that this subparagraph shall not apply to the discharge of a loan made by an educational organization described in clause (iii) or made by a private education lender, as defined in 15 U.S.C. 1650(a)(7), for services performed for the educational organization or for the private education lender.
(3) Notwithstanding this chapter:
(A) In the case of a distribution within the meaning of subsection (d)(3) of section 408A of the Code as amended and in effect for the taxable year, any amount included as income for federal tax purposes under said section 408A by reason of such distribution shall be included in gross income and, to the extent such distribution is included in adjusted gross income under subsection (c), shall be taken into account in determining taxable income under this chapter in the same manner as under subparagraph (A) of said subsection (d)(3) of said section 408A of said Code.
(B) Gain from the sale of a principal residence included in federal gross income under section 121 of the Code in effect on January 1, 1988, but excluded from federal gross income under section 121 of the Internal Revenue Code in effect for the taxable year, shall not be included in Massachusetts adjusted gross income. Notwithstanding any other provision of this chapter, the amount of gain from the sale of a principal residence excluded from Massachusetts adjusted gross income shall not be less than the exclusion allowed under section 121 of the Code in effect on January 1, 2002.
(C) Effective on and after January 1, 2002, any contributions, including employer contributions, employee deferrals and rollover contributions, allocations under or distributions from stock bonus, pension, profit-sharing, annuity or deferred payment plans or contracts or employee stock ownership plans described in sections 401(a), 402, 403, 404, 409 or 457 of the Code, or simplified employee pensions under section 408(k) of the Code, shall be included in gross income of a taxpayer only to the extent includible in the taxpayer's gross income for federal income tax purposes under the Code.
(b) Massachusetts gross income shall be divided into three Parts:
(1) Part A gross income shall be the total interest, dividends and capital gain income included in Massachusetts gross income, other than:—
(A) Interest and dividends from savings deposits, including term and time deposits having a principal amount of less than one hundred thousand dollars, savings accounts, share or share savings accounts in any savings or cooperative bank, trust company or credit union incorporated in or chartered by the commonwealth; in any national bank, federal savings and loan association, federal savings bank or federal credit union located in the commonwealth; in any banking company or Morris Plan company subject to chapter one hundred and seventy-two A; in any savings or loan association or banking partnership under the supervision of the commissioner of banks.
(B) Interest from loans made in the course of business by persons subject to the provisions of sections seventy to eighty-five, inclusive, of chapter one hundred and forty.
(C) Gain income from the sale or exchange of capital assets held for more than one year, with such holding period beginning on January 1, 1995 but not including gain income from the sale or exchange of property defined under section four hundred and eight (m)(2) of the Code, as amended and in effect for the taxable year.
(2) Part B gross income shall be Massachusetts gross income not included in Part A or Part C gross income; provided, however, that Part B gross income shall include bribes, corrupt gifts and any income gained through illegal activities.
(3) Part C gross income shall be capital gain income which equals the gains from the sale or exchange of capital assets held for more than 1 year.
For purposes of this subsection, property acquired prior to January 1, 1996 shall be deemed to have been acquired on January 1, 1995 or on the date of actual acquisition, whichever is later.
(c) Part A adjusted gross income shall be the Part A gross income less the following deductions in the following order:
(1) Any excess of the deductions allowable under subsection (d) over the Part B gross income, but the amount deductible under this paragraph shall only reduce an item of Part A gross income which is effectively connected with the active conduct of a trade or business of the taxpayer.
(2)(a) Losses from the sale or exchange of capital assets held for 1 year or less, provided that the excess, if any, of the Part A net capital loss for the year over the Part A net capital gain for the year, but not more than the amount allowed under paragraph (4), shall be applied against Part A interest and dividends; provided, however, that any remaining excess of the Part A net capital loss for the year shall be applied against capital gains included in Part C gross income. If Part A net capital loss for the year exceeds the Part C net capital gain for the year, then the excess, if any, of Part A net capital loss, after accounting for any deduction against interest and dividend income, shall be a Part A capital loss under this paragraph in the succeeding taxable year.
(b) The excess, if any, of the Part C net capital losses for the year over the Part C net capital gains for the year shall be applied against capital gains included in Part A gross income. If Part C net capital losses for the year exceed the Part A net capital gain for the year, then the excess, if any, of Part C net capital losses over Part A net capital gain, but not more than the amount allowed under paragraph (4), shall be applied against any interest and dividends included in Part A gross income, provided that the aggregate amount of the deduction allowed in this subparagraph against any interest and dividends shall not be more than the amount allowed under paragraph (4). The excess, if any, of the Part C net capital loss over the Part A net capital gain, after accounting for any deduction against interest and dividend income, shall be a Part C capital loss in the succeeding taxable year.
(3) A deduction equal to 50 per cent of the gain income from the sale or exchange of property defined under section 408(m)(2) of the Code, as amended and in effect for the taxable year, and held for more than 1 year, after reduction by any losses in paragraph (2).
(4) Notwithstanding any other provisions of this chapter, not more than an aggregate amount of $2,000 in Part A capital loss and Part C capital loss shall be applied against any interest and dividends included in Part A gross income.
(d) Part B adjusted gross income shall be the Part B gross income less the following deductions:—
(1) The deductions allowable under section sixty-two and four hundred and four, without regard to section two hundred and sixty-five, of the Code;provided, however, that the following deductions shall not be allowed:—
(A) The deductions allowed to life tenants and income beneficiaries by section sixty-two (a)(5) of the Code insofar as such deductions are allowed to a trust or estate subject to taxation under this chapter.
(B) Any deduction relating or allocable to any income not included in Massachusetts gross income or a proportionate part of any deduction which is in part so relating or allocable.
(C) Any net operating loss deduction allowed by section one hundred and seventy-two of the Code.
(D) In the case of an individual who is an employee within the meaning of section four hundred and one (c)(1) of the Code, the deductions allowed by section four hundred and four of the Code to the extent attributable to contributions made on behalf of such individual; provided, however, that no contribution on behalf of such individual shall be treated as an excess contribution under this chapter unless treated as an excess contribution for federal tax purposes in the year made.
(E) The deduction allowed by section one thousand three hundred and seventy-nine (b)(3) of the Code.
(F) The deduction allowed by section two hundred and nineteen of the Code relating to certain retirement savings.
(G) The deduction allowed by section four hundred and two (e)(3) of the Code relating to the ordinary income portion of a lump sum distribution.
(H) The deduction allowed by section one hundred and sixty-five of the Code relating to forfeitures because of premature withdrawal of funds to the extent that the income represented by such forfeiture was not included in Massachusetts gross income.
(I) The deduction allowed by section one hundred and sixty-two (h) of the Code.
[There is no subparagraph (J).]
(K) The deduction allowed by section one hundred and sixty-four (f) of the Code.
(L) The deduction for any amount paid or incurred in connection with:
(i) influencing legislation;
(ii) participation in, or intervention in, any political campaign on behalf of or in opposition to any candidate for public office;
(iii) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums; or
(iv) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official;
within the meaning of the code, as amended and in effect on January first, nineteen hundred and ninety-four and including the exceptions and definitions set forth in section 162(e) of said Code, as amended and in effect on January first, nineteen hundred and ninety-four.
(M) The deduction allowed by section sixty-two (a)(3) of the Code.
(N) The deduction allowed by section 168(k) of the Internal Revenue Code, as amended and in effect for the current tax year.
(O) The deduction allowed by section 199 of the Code, as amended and in effect for the current tax year.
(P) The deduction described in section 163(e)(5) of the Code to the extent increased by amendments to section 163(e)(5)(F) and section 163(i)(1) inserted by section 1232 of the American Recovery and Reinvestment Act of 2009.
[Subparagraph (Q) of paragraph (1) of subsection (d) effective for taxable years beginning on or after January 1, 2022. See 2022, 126, Secs. 189 and 197.]
(Q) The deduction allowed by section 199A of the Code.
(2) An amount equal to the deductions allowed by Part VI of the Code which (i) consist of expenses of travel, meals and lodging while away from home, or expenses of transportation paid or incurred by the taxpayer in connection with the performance by him of services as an employee; or (ii) are attributable to a trade or business carried on by the taxpayer, if such trade or business consists of the performance of services by the taxpayer as an employee and if such trade or business is to solicit, away from the employer's place of business, business for the employer; provided, however, that the taxpayer itemizes deductions on his federal income tax return and the deductions under clauses (i) and (ii) are allowed as itemized deductions under subsection (a) of section sixty-seven of the Code. No deduction shall be allowed under this paragraph to a taxpayer who files a joint federal income tax return with his spouse unless a joint return is also filed under this chapter.
(3)(a) For purposes of the depreciation deduction allowed under sections 62(a)(1) and 168 of the Federal Internal Revenue Code, as amended and in effect for the taxable year, a taxpayer that is required to comply with section 26G1/2 of chapter 148 of the General Laws and that has so complied, may classify an automatic sprinkler system having a situs in the commonwealth, and used exclusively in the trade or business of such taxpayer, as 5–year property as defined under section 168(e)(3) of the Federal Internal Revenue Code. The term ''automatic sprinkler system'' means the system installed pursuant to the provisions of said section 26G1/2 and in accordance with the state building code.
(b) Such depreciation deduction for the automatic sprinkler system shall be allowed only upon the condition that the net income for the taxable year and all succeeding taxable years be computed without any depreciation deduction upon the property other than the deduction allowed by this section.
[Paragraph (4) of subsection (d) effective for taxable years beginning on or after January 1, 2022. See 2022, 180, Sec. 29.]
(4) An amount equal to the amount paid or incurred during the taxable year in carrying on the trade or business of a marijuana establishment as defined in section 1 of chapter 94G or a medical marijuana treatment center as defined in section 1 of chapter 94I that would have been deductible under the Code, but for section 280E of said Code.
(e) Part C adjusted gross income shall be the Part C gross income less the following deductions:
(1) Losses from the sale or exchange of capital assets held for more than 1 year. The amount of any class of net capital loss reduced by the amount of such loss that is deducted under subparagraph (b) of paragraph (2) of subsection (c), shall be Part C capital loss in the succeeding taxable year.
(2) Part C net gains shall be reduced by any remaining excess of the deductions allowable under subsection (d) over the Part B gross income after applying such excess Part B deductions against Part A gross income in accordance with paragraph (1) of subsection (c). The amount deductible under this paragraph shall not exceed the amount of Part C gross income which is effectively connected with the active conduct of a trade or business of the taxpayer. Excess Part B deductions shall not be applied to increase the amount of any net capital losses and may not reduce the amount of any net capital gain below zero. The resulting amount of net capital gain shall comprise Part C adjusted gross income.
(3) Where a taxpayer has any unused Class B net loss, Class C net loss, Class D net loss, Class E net loss, Class F net loss or Class G net loss on April 30, 2002, the aggregate amount of such net losses shall be taken into account after April 30, 2002 as a loss on the sale or exchange of a capital asset held for more than 1 year.
(f) The Part A taxable income shall be the Part A adjusted gross income less the deductions and exemptions allowable under Part A of section three.
(g) The Part B taxable income shall be the Part B adjusted gross income less the deductions and exemptions allowable under Part B of section three.
(h) The Part C taxable income shall be the Part C adjusted gross income less the deductions and exemptions allowable under Part C of section three.
(i) Massachusetts adjusted gross income shall be the sum of Part A adjusted gross income, Part B adjusted gross income and Part C adjusted gross income.