A.The following sections of H.R.1, as they amend provisions of the Internal Revenue Code, address income, deductions, or allowances that would be subject to federal income tax but for the enactment of H.R.1 and thus are subject to Rhode Island Personal Income Tax.
1.Deduction of interest payments for individuals related to the purchase of a qualified passenger vehicle and vehicle loan interest in 26 U.S.C. §163(h), as added by § 70203.
a.Effective Tax Year 2025 through Tax Year 2028, 26 U.S.C. §163(h) allows a deduction of up to $10,000 annually for interest paid on a loan used to purchase a “qualified vehicle,” provided that the vehicle is purchased for personal use and meets other eligibility requirements.
b.As defined in 26 U.S.C. §163(h), “qualified vehicle” is a car, minivan, van, SUV, pick-up truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds and that has undergone final assembly in the United States.
c.Rhode Island tax treatment
(1)This tax provision is “below the line,” meaning it is not reflected in federal AGI, which is the starting point of the RI-1040 and RI-1040NR returns. Rhode Island is decoupled from this tax treatment and will not allow for this exclusion from ordinary taxable income. However, because this deduction is not used to calculate federal AGI, it will not need to be added back as a modification to the Rhode Island state income tax return.
2.Modification of limitation on business interest in 26 U.S.C. § 163(j), as amended by § 70303.
a.Pursuant to 26 U.S.C. § 163(j)(8)(A), “adjusted taxable income” means the taxable income of the taxpayer computed without regard to “any deduction allowable for depreciation, amortization, or depletion” for taxable years beginning after December 31, 2024. As § 163(j) reduces federal AGI, to the extent a taxpayer takes a deduction federally, it must be added back for purposes of the Rhode Island Personal Income Tax.
b.Rhode Island tax treatment
(1)Sole Proprietor: If the personal income tax return is originally filed or amended and includes an additional deduction for the business interest expense than what was allowed prior to the enactment of H.R.1, then the sole proprietor must add back the additional business interest expense on the RI Schedule HR1 - Individual form. This amount will be reflected on Federal Form 8990 then reported on Schedule C, line 16 for sole proprietors.
(2)Partner in a Partnership or Owner in an S-Corporation: If the personal income tax return is originally filed or amended and includes an additional deduction for the business interest expense than what was allowed prior to the enactment of H.R.1, then the partner or owner must add back the additional business interest expense on the RI Schedule HR1 - Individual form. This amount will be reflected on the RI Schedule K-1, Section II, line 5 and will need to be reported as part of the amount reported on the RI Schedule M, line 2k.
3.Treatment of certain qualified sound recording productions in 26 U.S.C. §§ 168(k) and 181, as amended by § 70434.
a.26 U.S.C. §§ 168(k) and 181 allow a special deduction for qualified sound recording productions, which reduces taxable income for sole proprietorships, partnerships, and S-corporations. As §§ 168(k) and 181 reduce federal AGI, to the extent a taxpayer takes a deduction federally, it must be added back for purposes of the Rhode Island Personal Income Tax.
b.Rhode Island tax treatment
(1)Sole Proprietor: If the personal income tax return is originally filed or amended and includes an additional deduction of qualified sound recording production equipment under 26 U.S.C. §§ 168(k) and 181 than what was allowed prior to the enactment of H.R.1, then the sole proprietor must add back the additional deduction on the RI Schedule HR1 - Individual form. This amount will be reflected on Federal Form 4562 then reported on Schedule C, line 13 or line 27a for sole proprietors.
(2)Partner in a Partnership or Owner in an S-Corporation: If the personal income tax return is originally filed or amended and includes an additional deduction of qualified sound recording production equipment under 26 U.S.C. §§ 168(k) and 181 than what was allowed prior to the enactment of H.R.1, then the partner or owner must add back the additional deduction on the RI Schedule HR1 - Individual form. This amount will be reflected on RI Schedule K-1, Section II, line 8 and will need to be reported as part of the amount reported on the RI Schedule M, line 2k.
4.Full expensing of domestic research and experimental expenditures in 26 U.S.C. § 174A, as added by § 70302.
a.H.R.1 adds 26 U.S.C. § 174A regarding amortization of research and experimental expenditures in the computation of federal AGI. It includes two provisions impacting domestic research and experimental expenditures:
(1)Allowing all sole proprietors, partners in partnerships, or owners in an S-corporation to accelerate expensing of these expenditures starting with Tax Year 2025; and
(2)Allowing sole proprietors of small businesses, partners in small business partnerships, or owners in small business S-corporations, with small business defined as a business that has average gross receipts of $25 million or less (indexed for inflation), to retroactively accelerate expensing of these expenditures for Tax Years 2022, 2023, and 2024. For a taxable year beginning in 2025, the annual gross receipts test is $31 million or less due to inflation.
b.Rhode Island tax treatment
(1)If a sole proprietor, partner in a partnership, or owner in an S-corporation elects to file an original or amended federal return for Tax Years 2022, 2023, and/or 2024 to accelerate these expenses, then the sole proprietor, partner, or owner shall file an original or amended return with Rhode Island for that tax year as well, and shall complete RI Schedule 174A as an attachment with the paper or electronic filing. The amounts reported on the RI Schedule 174A will be added back on the correlating original or amended RI-1040 or RI-1040NR for that tax year to effectuate the addback required pursuant to Rhode Island law. Future amortization deductions may not exceed twenty percent (20%) of the initial addback each subsequent year a deduction is taken as allowed by law.
(2)The sole proprietor, partner, or owner shall complete this RI Schedule 174A amortization worksheet for the applicable tax year:
(3)Eligible sole proprietors of small businesses, partners in small business partnerships, or owners in small business S-corporations that do not elect to retroactively deduct certain unamortized amounts in Tax Years 2022, 2023, and/or 2024 may elect to accelerate the deduction of unamortized amounts paid for, or incurred in, tax years prior to Tax Year 2025 on the federal Tax Year 2025 filing. Rhode Island decoupled from this tax treatment, which means if this election is made at the federal level, the sole proprietor, partner, or owner is required to complete “RI Schedule 174A” and “2025 RI Schedule HR1 – Individual,” and then report on the correlating RI-1040 or RI 1040NR return for Tax Year 2025. These schedules may be filed as part of the individual’s paper or electronic filing.
(4)For Tax Year 2025, all sole proprietors, partners in partnerships, or owners in S-corporations may elect to amortize research and experimental expenditures at the federal level. Rhode Island decoupled from this tax treatment for this tax year. If a sole proprietor, partner, or owner does not amortize on the federal filing, the taxpayer shall amortize the expenditures on the Rhode Island return. The taxpayer is required to complete “RI Schedule 174A” and “2025 RI Schedule HR1 – Individual” and then report on the correlating RI-1040 or RI-1040NR return for Tax Year 2025. These schedules may be filed as part of the individual’s paper or electronic filing.
(5)For all tax years, sole proprietors, partners, and owners in S-corporations will be required to maintain an amortization schedule for Rhode Island tax purposes. Any amount that is not allowed within the tax year may be carried forward for a total of five (5) years. Future amortization deductions may not exceed twenty percent (20%) of the initial addback each subsequent year a deduction is taken as allowed by law.
(a) Example:
Amortization Begin Year | Amortization % | Amortizable Amount | Annual Rhode Island Amount | Remaining Amount |
2022 | 20% | $100,000 | $20,000 | $80,000 |
2023 | 20% | | $20,000 | $60,000 |
2024 | 20% | | $20,000 | $40,000 |
2025 | 20% | | $20,000 | $20,000 |
2026 | 20% | | $20,000 | |
(6)If the Federal 1065 or 1120-S return is originally filed or amended to accelerate amortization of research and experimental expenditures, then the qualifying small business partnership or S-corporation will be required to provide each partner or owner with a RI Schedule K-1 that properly reflects Rhode Island’s guidance on decoupling from the federal provisions approved as part of H.R.1. The partner or owner will be required to file an original or amended RI-1040 or RI-1040NR based upon the information reported from the entity.
5.Increased dollar limitations for expensing of certain depreciable business assets in 26 U.S.C. § 179(b), as amended by § 70306.
a.26 U.S.C. § 179(b) sets limitations for expensing certain depreciable business assets. Increasing the expensing limits allows businesses to write off more asset costs immediately, which reduces taxable income for sole proprietorships, partnerships, and S-corporations. As § 179(b) reduces federal AGI, to the extent a taxpayer takes a deduction federally, it must be added back for purposes of the Rhode Island Personal Income Tax.
b.Rhode Island tax treatment
(1)Sole Proprietor: If the personal income tax return is originally filed or amended and includes an additional deduction for depreciation of assets under 26 U.S.C. § 179(b) than what was allowed prior to the enactment of H.R.1, then the sole proprietor must add back the additional depreciation on the RI Schedule HR1 - Individual form. This amount will be reflected on Federal Form 4562 then reported on Federal Form Schedule C, line 13for sole proprietors.
(2)Partner in a Partnership or Owner in an S-Corporation: If the personal income tax return is originally filed or amended and includes an additional deduction for depreciation of assets under 26 U.S.C. § 179(b) than what was allowed prior to the enactment of H.R.1, then the partner or owner must add back the additional depreciation on the RI Schedule HR1 - Individual form. This amount will be reflected on RI Schedule K-1, Section II, line 7 and will need to be reported as part of the amount reported on the RI Schedule M, line 2k.
6.Income tax deduction for qualified tips in 26 U.S.C. § 224, as added by H.R.1 § 70201.
a.Effective Tax Year 2025 through Tax Year 2028, 26 U.S.C. § 224 allows qualified employees and self-employed individuals a new “below-the-line” deduction of up to $25,000 for qualified tip income.
b.As defined in 26 U.S.C. § 224, “qualified tips” are voluntary cash or charged tips received from customers or through tip-sharing.
c.Rhode Island tax treatment
(1)This tax provision is “below-the-line,” meaning it is not reflected in federal adjusted gross income, which is the starting point of the RI-1040 and RI-1040NR returns. Rhode Island is decoupled from this tax treatment and will not allow for this exclusion from ordinary taxable income. However, because this deduction is not used to calculate federal AGI, it will not need to be added back as a modification to the Rhode Island state income tax return.
7.Income tax deduction for qualified overtime in 26 U.S.C. § 225, as added by § 70202.
a.Effective Tax Year 2025 through Tax Year 2028, 26 U.S.C. § 225 allows employees a new “below-the-line” deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime compensation.
b.Rhode Island tax treatment
(1)This tax provision is “below-the-line,” meaning it is not reflected in federal adjusted gross income, which is the starting point of the RI-1040 and RI-1040NR returns. Rhode Island is decoupled from this tax treatment and will not allow for this exclusion from ordinary taxable income. However, because this deduction is not used to calculate federal AGI, it will not need to be added back as a modification to the Rhode Island state income tax return.
