Delaware 529 Plan State Deductions

Question

Hello,

We are currently contributing to our daughters 529 plan, based in DE. We are also DE residents. DE's tax code states the following:

"Federal adjusted gross income will be reduced for any contribution up to $1,000 (or $2,000 for joint returns) with a few conditions.

The deduction will NOT apply to:

* Tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school
* Individuals with a federal AGI greater than $100,000 (or $200,000 for joint returns).

Deductions for couples with an AGI below $200,000 are capped at $2,000."

My question specifically revolves around how my wife and I file our taxes in DE, which is considered "Married & Filing Combined Separate". I presume if we contribute $2,000 this year and our combined AGI is under $200,000 we'd still be eligible for the deduction even if we file combined seperate?

MatthewD · Answer

Hello,

A DE "Married & Filing Combined Separate" is still one return and the limitations apply if your return was a Joint return.  So you are correct.  You can each contribute $2,000

JanaA · Answer

Hello BirdsFan302! Welcome to FreeTaxUSA!

Delaware has a unique filing status, Combined Separate. In this case, the separate return for each spouse is combined on the same form for convenience.

When you use this filing status, you are subject to the tax rules of the married filing separate status. The DE instructions for the 529 deduction state, "For a single, married filing separately, or head of household filer whose federal adjusted gross income is less than $100,000 the maximum exclusion is $1,000."

Which means that if you qualify, you would each be eligible for the maximum exclusion of $1000 on your separate returns. When both separate returns are combined, you would be able to take advantage of the full $2000 exclusion as applicable.