Instructions for Schedule CA (540)
These instructions are based on the Internal Revenue Code (IRC) as of January 1, 2001 and the California Revenue and Taxation Code (R&TC).
• Exemption of interest on any bond or other obligation issued by the
Government of American Samoa.
In general, California law conforms to the Internal Revenue Code (IRC)
California law is the same as federal law in the following areas:
as of January 2001. However, there are continuing differences between
Roth IRAs. The contribution rules and distribution rules are the same.
California and federal law. When California conforms to federal tax law
changes, we do not always adopt all of the changes made at the federal
Self-employed health insurance deduction. The percentage for 2004
level. For more information regarding California and federal law, please
visit our Website at and select “Law and Legislation.”
Note: For instructions regarding registered domestic partners, see
Additional information can be found in FTB Pub. 1001, Supplemental
page 4, line 31.
Guidelines to California Adjustments and the Business Entity tax
Holocaust Restitution Payments. An exclusion is provided for
Holocaust reparations received by eligible individuals, their heirs or
Note, the instructions provided with California tax forms are a summary
estate for Holocaust restitution payments, distributions or excludable
of California tax law and are only intended to aid taxpayers in preparing
their state income tax returns. We include information that is most
Charitable Contributions for 2004 Tsunami Disaster. Recently enacted
useful to the greatest number of taxpayers in the limited space
federal law allows a 2004 charitable contribution deduction for
available. It is not possible to include all requirements of the California
contributions made through January 31, 2005 for the 2004 Tsunami
Revenue and Taxation Code (R&TC) in the tax booklets. Taxpayers
Disaster. As of March 11, 2005, California law conforms to federal law
should not consider the tax booklets as authoritative law.
with regards to the 2004 Tsunami Disaster contributions. If you filed
Military Personnel – Servicemembers domiciled outside of California,
your California return prior to March 11, 2005 and reported the
and their spouses, may exclude the member's military compensation
charitable contribution for the 2004 Tsunami disaster as a negative
from gross income when computing the tax rate on nonmilitary income.
amount on line 40 on Schedule CA, use Form 540X, Amended Indi-
Requirements for military servicemembers domiciled in California
vidual Income Tax Return, and report the negative amount as a positive
remain unchanged. Military servicemembers domiciled in California
amount on line 2e, column B.
must include their military pay in total income. In addition, they must
include their military pay in California source income when stationed in
California. However, military pay is not California source income when a
servicemember is permanently stationed outside of California. For more
Use this schedule to make adjustments to your federal adjusted gross
information, get FTB Publication 1032, Tax Information for Military
income and to your federal itemized deductions using California law.
Differences Between California and Federal Law for 2004:
Part I – Specific Line Instructions
California law does not conform to federal law for:
Column A — Federal Amounts
• The tax incentives for “renewal communities.” California law does,
however, provide a variety of independent area tax incentives to
Line 7 through Line 21 – Enter on line 7 through line 21 the same
encourage revitalization of specially designated areas. The Govern-
amounts you entered on your federal Form 1040, line 7 through line 21;
ment Code provides for the designation of Enterprise Zones, Local
Form 1040A, line 7 through line 14b; or Form 1040EZ line 1, line 2, and
Agency Military Base Recovery Areas (LAMBRAs), a Targeted Tax
Area (TTA), and Manufacturing Enhancement Areas (MEAs).
Line 22 – Total
California law conforms to the general federal rules for expensing
Combine the amounts on line 7 through line 21.
IRC Section 179 property with the exception that California law only
Line 23 through Line 33 – Enter the same amounts you entered on
allows a maximum deduction of $25,000. In lieu of this deduction,
your federal Form 1040, line 23 through line 33 or Form 1040A, line 16
the California Personal Income Tax Law allows a taxpayer with a
through line 19.
business in an “Economic Development Area” to elect to expense
$20,000 to $40,000 (depending on the designation) of certain
Line 34a and Line 34b – Enter on line 34a the same amount you
specified equipment used in the business.
entered on your federal Form 1040, line 34a. Enter on line 34b the
• The increased IRC Section 179 expense. Although federal law
social security number and last name of the person to whom you paid
increased the IRC Section 179 expense to $102,000, the maximum
deduction amount under California law is $25,000.
Line 35 – Add line 23 through line 34a. However, if you made any of the
• Rebates or vouchers received from a local water agency, energy
adjustments described in the instructions for federal Form 1040, line 35
agency, or energy supplier. This includes a rebate, voucher or other
or if you claimed the foreign housing deduction from federal Form 2555,
financial incentive from the California Energy Commission, the Public
Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income
Utility Commission, or a local publicly owned electric utility company
Exclusion, enter the amount from Form 1040, line 35 on this line.
for any expenses paid or incurred by a taxpayer for the purchase or
Line 36 – Total
installation of a thermal, solar or wind energy/fuel generating system.
Subtract line 35 from line 22.
• Interest deduction allowed for interest paid on any loan or indebted-
ness from a utility company to purchase energy efficient equipment
Column B and Column C — Subtractions and Additions
and products for California residents.
Use these columns to enter subtractions and additions to the federal
• Net Operating Loss - Pierce's disease.
amounts in column A that are necessary because of differences
• The additional 30% or 50% first year depreciation allowance for
between California and federal law. Enter all amounts as positive
numbers unless instructed otherwise.
• Educator Expense or the Tuition and Fees deduction.
You may need one of the following FTB publications to complete
• The Student loan interest deduction.
column B and column C:
• The Clean Air Fuel first year deduction. You will need to report this
• 1001, Supplemental Guidelines to California Adjustments;
adjustment on line 35, column B as part of your subtractions.
• 1005, Pension and Annuity Guidelines;
• Health Savings Account.
• 1031, Guidelines for Determining Resident Status;
• Certain business expenses of reservists, performing artists, and fee-
• 1032, Tax Information for Military Personnel; or
basis government officials.
Schedule CA (540) Instructions 2004 (REV 03-05) Page 1