Form foils college savings deduction

Looking for the line on your state tax return to deduct your college savings contributions? Good luck.

Last year, legislators agreed to give a break to taxpayers who make payments to the state's 529 college savings plan. But the 2006 tax forms don't designate a specific line for the deduction. That is causing some confusion.

Ben Kittner, a spokesman for North Carolina's plan, said the organization has been hearing from plan participants who can't figure out what to do.

The trouble is twofold, Kittner said. None of the lines on the state tax form say anything about 529 plans or college savings deductions. And, in the instructions for the state form, the plan is referred to as the Parental Savings Trust Fund of the State Education Assistance Authority. Few would know it by that name as it's marketed as the N.C. National College Savings Program.

So how can you claim your deduction? Go to line 46 on form D-400 where you're asked to include "other deductions from federal taxable income" and fill in the correct amount.

To figure it out, read the N.C. 2006 Individual Income Tax Instructions for Form D-400. Instructions can be found at (www.dornc.com/downloads/individual.html).

At the top of Page 3 is a list of all the changes for tax year 2006. The second item mentions the Parental Savings Trust Fund directing readers to Page 13. There, under line 46 instructions, it explains exactly where on the form you can take your deduction, and the amount.

Here's what you can deduct:

For 2006, taxpayers who meet income requirements may deduct contributions up to $750 for individuals or $1,500 for joint filers. In 2007, the amount will increase to $2,000 for individuals and $4,000 for joint filers.

A single filer's income is capped at $60,000. For those who are married and filing jointly, the income cap is $100,000; married and filing separately have a $50,000 limit. If you file as head of household, the limit is $80,000.

If you need help, call the N.C. Department of Revenue Service Center in Raleigh at (919) 733-3981.