CATEGORY:

HOMEOWNERS' TAX CREDIT

012

SUBJECT:

Application

020

TOPIC:

Dividends

120

Date Issued
5/1/88

Revision #

Dividends

Dividend income is shown either at:

1. line 9A of Form 1040; or
2. line 8A of Form 1040A.

Persons with more than $400 in dividend income must complete either Schedule B of Form 1040 or Part IV of Schedule l of Form 1040A. Persons with any amount of dividend income cannot use Form 1040EZ.

Line 9A on Form 1040 is the total amount of dividend income received; line 9B is the federal exclusion of up to $200; and line 9C is the difference after subtracting the exclusion on line 9B from the total on line 9A. Often the Tax Credit applicant may attempt to report the amount on line 9C as the total dividend income on the credit application but the Department employee must go back to the federal form and make certain the amount on line 9A is being reported. If the applicant has more than $400 in dividends thereby requiring Schedule B to be filed, it is best to utilize the amount of dividend income shown on line 5 of Schedule B, Part II.

Line 8A on Form 1040A is the total amount of dividend income received; line 8B is the exclusion; and 8C is the difference after subtracting the exclusion from the dividend income. Again, the applicant must report on the credit application form the total dividend income found on line 8A of Form 1040A.

The federal exclusion for dividend income was established to encourage investment but it is impermissible and irrelevant to the Homeowners' Tax Credit purpose to measure the true ability to pay the individual property tax bill.

If the total dividends are in excess of $16,000 or if there is more than $16,000 in combined dividend and interest income, then the special denial letter (Form HTC-4) for net worth in excess of $200,000 shall be sent. Here it has been established that the Department will utilize a 8% capitalization rate for the current taxable year in the determination of net worth. Again, local Tax Credit employees are reminded that the full cash value of other real estate owned with the capitalized value of dividends and interest income in the net worth determination. Any questions on the part of local Tax Credit employees in this regard should be referred to the central office coordinators.