Minnesota 2020 Charitable Deduction Limit is wrong in Turbotax

[Reebs]

I just talked to the Minnesota Department of Revenue and they confirmed that the state is following Publication 526 which describes limitations on Charitable donations.  The Minnesota form M1SA  line 18 should be limited and equal to the IRS Schedule A line 14.  If  contribution exceed 60% of Adjusted Gross Income, then the M1SA does not recognize the additional contributions and does not equal Schedule A  calculated limits.

Note I have updated the software as of today and it still exists on the desktop deluxe windows version.

How do I get Turbotax to recognize and fix this issue?

[BillM223]

There are situations in which Schedule A line 14 can be more than 60% of the AGI.

However, in my copy of the desktop software, I cannot reproduce what I think your issue is: that more than 60% of certain contribution were allowed on Schedule A on the 1040, but Minnesota should limit the contributions (please correct me if I am wrong).

I'm going to need your help to get more information. Please send me a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

***Online Product***

1. Sign into your online account.
2. Locate the Tax Tools on the left hand side of the screen.
3. A Drop down will appear. Click on Share my file with agent.
4. This will generate a message that a diagnostic copy will be created. Click on OK, the tax file gets sanitized and transmitted to us.
5. Please provide the Token Number that was generated onto a response to this thread.

***Desktop Product***

1. Click into your return.
2. Click Online and select "Send Tax File to Agent".
3. This will generate a message that a diagnostic copy will be created. Click on OK, the tax file gets sanitized and transmitted to us.
4. Please provide the Token Number that was generated onto a response to this thread.

Also, please enter at the end of your reply @ BillM223 (without the swpace in between) so that I will be notified.

[Reebs]

@BillM223

Token 809955

Compare M1SA line 18 to IRS Sch A line 14

[BillM223]

Thank you for the token. However when I try to open the return in TurboTax 2020, it tells me that the file is corrupt and won't open.

Who knows what has gone wrong, but may I ask your indulgence to create another token and notify me again just as you did before? Thanks!

[Reebs]

@BillM223

Token 810034

[Reebs]

@BillM223

If the latest token is corrupt,  I tried a new return and simply put in income (1099R) of $200K and a Contribution of $180K (100% charity).  Same issue on the state of MN.  This token is 810067.

[BillM223]

Thanks. I was not able to open any of your actual, sanitized returns, but the last one - 810067 - I could open.

The software is working fine in my copy of desktop Home & Business - Schedule A has the full $180,000 contribution, but on the Minnesota return form M1SA (line 18) is limited to $120,000. Note that the full $180,000 appears on line 15, however, the word "Limited" appears on line 18 along with the limited amount.

So we have to presume that your software has not been updated despite your attempts to do so.

We don't know if the problem is in the state software or in the federal software (i.e., how the federal software is offering the information to the state).

We do not have a way to update the state software manually, other than the Update process you have already done.

But we do have a manual software update process for the federal software. 

So please look at this TurboTax Help article and see if you can manually update the federal software. Also see this TurboTax Help article.

With luck, the problem may be in the federal software and this will fix it, or, when you do the update process next (Online->Check for Updates), TurboTax may notice that things have changed and download more federal and state fixes.

As you can see, we are trying to shake the software up so that it fixes it self. We know the fix is there - it's just a matter of shaking it up to trigger the correct update.

Let me know.

[Reebs]

@BillM223

The issue I am pointing out is that the Minnesota amount should be the same as the IRS.  Thus the Minnesota should be $180,000 and not limited to $120,000.  The Minnesota calculation is using the 60% limitation factor which was for  2019.  The 2020 amount should be the same as the federal Schedule A.  You are seeing the issue.

[Reebs]

@BillM223

I had password protected my return.  My guess is that is why your sanitized versions did not work rather than a problem with updating the software.  Could that be the case?

[BillM223]

I see the confusion here.

The Minnesota Society of CPAs says, "Minnesota is a static conformity state and has not adopted the changes Congress passed in 2020."

The State of Minnesota says:

"

Will Minnesota conform to federal tax law changes enacted after December 31, 2018?We continue to mon...

"

What these two statements mean is that Minnesota adopted conformance with federal law at a certain point in time, and if the feds change the law after that point, then Minnesota has to take explicit steps (pass new legislation) to adopt the new federal changes. The Minnesota website does not mention any updates that apply to this issue.

Minnesota was in conformance on this issue (the 60% versus 100% charitable contribution limit) after 12/31/2018, but the Cares Act was signed into law on March 27, 2020. As the MN Society of CPAs says, the state has not adopted the changes made by the feds in 2020.

I have looked and I do not find any evidence that Minnesota has passed new legislation since March 2020 adopting the new 100% limit. I am concerned that when the employee at the state told you that Minnesota is following Pub 526, they were thinking of Pub 526 as it existed before the latest federal updates. Note that Pub 526 still refers to the 60% limit, and there is a separate section that was inserted that talks about the 100% limit.

So I will try to call the state tomorrow, but I suspect that I will find that the software is working correctly. I will let you know what I find. 

PS "My guess is that is why your sanitized versions did not work rather than a problem with updating the software." It is highly likely that this was the problem.

[Reebs]

@Bill223 Yes you exactly understand my dilemma.  The M1SA instructions say to use Publication 526 to determine the limitations.  It does not say anything about using the 2018 version.  It seems like one gets a different answer depending on whom you talk to.  Thanks for following through on this.

[Reebs]

@BillM223

Did you check with the State of Mn?  I did some further research and though MN tax law conformity in general is static to the IRC as amended to Dec 31, 2018,  It makes that condition only to specific sections of the MN Statute and mainly applies to determining income.  The itemize deduction and charitable contribution don't appear to have the limit of conformity to 2018. https://www.revisor.mn.gov/laws/2019/1/Session+Law/Chapter/6/

Sec 16 subsec 4

I still think TurboTax is wrong.

[BillM223 · Accepted solution]

@Reebs

I have checked with the State of Minnesota Department of Revenue, and the issue is murky.

On the one hand, generally the State has to explicitly enable conformance with changes in federal tax law, and while there are a number of bills currently in the legislature, none of them have passed yet (for example, the legislation to enable $10,200 of unemployment to be nontaxable to match the federal law has not passed yet).

On the other hand, as you say, the MN M1SA instructions clearly state that you should go to IRS Pub 526 for the rules on what's deductible (and how much), and the 100% language is now in Pub 526.

Throw into the mix that MANY of the changes in 2020 in Congress are to adjustments to federal AGI. MN M1NC which reports on conformity (or lack thereof) with federal law states baldly: "Minnesota has not adopted the federal law changes enacted after December 31, 2018, that affect feder..."

But on the third hand(?), charitable contributions are part of Itemized Deductions, which are generally after adjusted gross income and before taxable income. So the fact that enabling legislation enabling conformance has not passed yet is perhaps irrelevant to the charitable contribution limit issue.

The upshot was that the DOR representative said, "follow the [state] instructions".

At those point, it is highly unlikely that TurboTax will change the Minnesota software in time for you to file, so since you have the Deluxe desktop software, if you want to go ahead and use the 100% limit in Minnesota, you can override it on form M1SA, line 18, by doing a right-mouse click on that numeric field and entering the value that you want (it was $180,000 in the test I was able to open, but I am not sure that reflects the returns I was unable to open). I was able to make this override and it flowed through to the M1.

Just document what you did and why, in case Minnesota ever writes you a letter about this. 

[Reebs]

@BillM223 

Thanks so much for checking into this.  I came to the same conclusion.  Just wish TurboTax had come to the same conclusion.  So much for their guarantees.