Section 100.2565  Subtraction for Recovery of Itemized Deductions (IITA Section 203(a)(2)(I))

a)         In computing base income, an individual is allowed to subtract from his or her federal adjusted gross income an amount equal to all amounts included in that total pursuant to the provisions of IRC section 111 as a recovery of items previously deducted from adjusted gross income in the computation of taxable income. (IITA Section 203(a)(2)(I))

b)         Under IRC section 111, a taxpayer who is allowed a deduction in computing federal taxable income in one taxable year, and recovers the deductible expenditure in a subsequent taxable year, includes the recovery in gross income in the year of recovery.  For example, an individual who claims an itemized deduction for State income taxes paid in 2015 on his or her 2015 federal income tax return, and in 2016 receives a refund of some of that tax, includes the refund in gross income for 2016.  This procedure prevents the taxpayer from receiving a tax benefit for an expenditure that ultimately did not cost the taxpayer, without requiring the filing of an amended return to remove the deduction from the computation of taxable income in the year the deduction was taken.

c)         Under IITA Section 203(a)(1), the computation of an individual's base income begins with his or her federal adjusted gross income, which is equal to taxable income before itemized deductions, the standard deduction and personal exemptions are taken into account.  As a result, individuals receive no Illinois income tax benefit from federal itemized deductions.  Accordingly, recoveries of federal itemized deductions do not need to be included in an individual's base income to prevent the individual receiving a tax benefit for the item. IITA Section 203(a)(2)(I) therefore allows individuals to subtract recoveries of itemized deductions that are included in their federal adjusted gross income.

d)         IITA Section 203(a)(2)(I) was enacted before the September 16, 1994 effective date of PA 88-660, which enacted the automatic sunset provisions in IITA Section 250.  The automatic sunset provisions therefore do not apply to this Section.

(Source:  Added at 42 Ill. Reg. 17852, effective September 24, 2018)