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Domestic Production Activities Deduction

Overview for VT Tax Year

The domestic production activities deduction enacted as section 199 of I.R.C. in 2004 passes
through for Vermont income tax purposes.

The Federal deduction applies to all U.S. taxpayers—corporations, S-corps, partnerships,
individuals, estates and trusts. Pass-through entities compute the deduction at the individual
partner or shareholder level and is taken as an adjustment to AGI on Federal Form 1040 or
1040NR.

I.R.C. Section 199 defines “production activities” more broadly that just manufacturing. It
includes, for example, construction, film production, farming, software development,
architectural services, and food and beverage production. Click here for IRS information on
the Domestic Production Activities deduction.

Interaction with Vermont Forms

IN-111 - The Domestic Production Activities deduction already will be reflected in the
adjusted gross income and Federal taxable income entered on the VT income tax return.

IN-113 - For part-year residents and nonresidents, enter the total amount for Federal Column
A. For Column B VT Portion, enter the amount of domestic production activities deduction in
proportion to VT income.

To determine the VT percentage of income:
1. Divide VT income on the VTK-1 by the income on Federal Schedule K-1.
2. Multiply the domestic production activities deduction on the Federal Schedule K-1 in
“Other deductions” section by the VT income percentage.
3. Enter the amount on IN-113, Line 25, Column B.
Receiving the deduction from more than one entity: Follow steps 1 and 2 for each K-1.
The entry on IN-113, Line 25, Column B is the sum of the VT portion of the deduction for all
K-1 schedules.

 
Vermont Department of Taxes, 133 State Street, Montpelier, Vermont 05633-1401