Instructions For Schedule Ca (540) - State Of California Franchise Tax Board (Page 6 of 7) in pdf

conform to this provision. Transfer the amount from column A,

claiming an itemized deduction for state and local income taxes. The

line 28, to column B, line 28.

Act gives taxpayers a choice of deducting actual taxes or a tabular

• Line 31 (Self-Employed Health Insurance Deduction), most people do

amount, increased by certain actual taxes. California has not conformed

not have an entry in column B or column C. For the purposes of this

to this Act.

deduction, California allows you to treat your registered domestic

Line 40 – Other Adjustments

partner as your spouse.

Adoption-Related Expenses. If you deducted adoption-related

Enter on column C, line 31, the amount paid for health insurance

expenses on your federal Form 1040, Schedule A and are claiming the

coverage (established under your business) for your registered

adoption cost credit for the same amounts on your Form 540, enter the

domestic partner and their dependents. Your total California

amount of the adoption cost credit claimed as a negative number on

deduction cannot exceed the limitations explained in the federal

line 40.

instructions. Do not include health insurance costs for any month

Mortgage Interest Credit. If you reduced your federal mortgage

you were eligible to participate in any subsidized health plan

interest deduction by the amount of your mortgage interest credit (from

maintained by your or your domestic partner's employer.

federal Form 8396, Mortgage Interest Credit), increase your California

Enter on column B, line 31, the amount of health insurance cost

itemized deductions by the same amount. Enter the amount of your

included in column A, line 31, for any month you were eligible to

federal mortgage interest credit as a positive number on line 40.

participate in any subsidized health plan maintained by your

Nontaxable Income Expenses. If, on federal Schedule A, you claim

registered domestic partner's employer.

expenses related to producing income taxed under federal law but not

Line 34a – Alimony Paid

taxed by California, enter the amount as a negative number on line 40.

Enter the social security number and last name of the person to whom

You may claim expenses related to producing income taxed by

you paid alimony.

California law but not taxed under federal law by entering the amount as

Note: If you are a nonresident alien and did not deduct alimony on your

a positive number on line 40.

federal return, enter the amount you paid in column C.

Employee Business Expense. If you completed federal Form 2106,

Line 35 – Add line 23 through line 34a in column B and column C. If

Employee Business Expense, or Form 2106-EZ, Unreimbursed

you claimed the clean fuel deduction, include that amount in the total

Employee Business Expense, prepare a second set of forms reflecting

you enter in column B, line 35. Enter the amount and “Clean Fuel” on

your employee business expense using California amounts (i.e.,

the dotted line next to line 35. If you claimed the foreign housing

following California law).

deduction, include that amount in the total you enter in column B,

Compare lines 10 on the federal form and the form completed using

line 35. Enter the amount and “Form 2555” or “Form 2555-EZ” on the

California amounts. If the federal amount is larger, enter the difference

dotted line next to line 35. If you're an active duty military and you're

as a negative number on line 40 (bracket the number). If the California

not domiciled in California and your IRA deduction was limited because

amount is larger, enter the difference as a positive number on line 40.

of a federal AGI limitation, recalculate your deduction excluding your

Investment Interest Expense. Your California deduction for investment

active duty military pay. If the recalculated amount is larger than the

interest expense may be different from your federal deduction. You

amount on line 25, column A, enter the difference between the two

must use form FTB 3526, Investment Interest Expense Deduction, to

amounts in Column C, line 35. Enter the amount and “MPA Adjustment”

figure the amount to enter on line 40.

on the dotted line next to line 35.

Interest Expense Deduction. Your California interest expense deduction

Line 36 – Total

may be different from your federal deduction. A deduction is allowed

Subtract line 35 from line 22 in column B and column C.

for interest paid on any loan or financed indebtedness from a utility

Also, transfer the amount from:

company to purchase energy efficient equipment and products for

• Line 36, column B to Form 540, Side 1, line 14

California residences. Enter as a positive number on line 40.

Caution: If column B is a negative number, transfer the amount as a

Gambling Losses. California lottery losses are not deductible for

positive number to line 16.

California. Enter the amount of California lottery losses shown on

federal Schedule A as a negative number on line 40.

• Line 36, column C to Form 540, Side 1, line 16

Federal Estate Tax. Federal estate tax paid on income in respect of a

Caution: If column C is a negative number, transfer the amount as a

decedent is not deductible for California. Enter the amount of federal

positive number to line 14.

estate tax shown on federal Schedule A as a negative number on

Note: If you plan to itemize deductions, go to Part II.

line 40.

Generation Skipping Transfer Tax. Tax paid on generation skipping

Part II – Specific Line Instructions

transfers is not deductible under California law. Enter the amount of

expenses shown on federal Schedule A as a negative number on

Line 37 – Federal Itemized Deductions

line 40.

Enter the total amount of itemized deductions from your federal

Form 1040, Schedule A, lines 4, 9, 14, 18, 19, 26, and 27. Important: If

State Legislator’s Travel Expenses. Under California law, deductible

you did not itemize deductions on your federal tax return but will

travel expenses for state legislators include only those incurred while

away from their place of residence overnight. Figure the difference

itemize deductions on your California tax return, first complete federal

Schedule A. Then complete Schedule CA (540), Part II, line 37 through

between the amount allowed using federal law and the amount allowed

line 43.

using California law. Enter the difference as a negative number on

line 40.

Line 38 – State, Local, and Foreign Income Taxes; General Sales Tax

Enter the state and local income tax from federal Form 1040,

Health Savings Account (HSA) Distributions. If you received a tax-free

Schedule A, line 5 and only the portion relating to foreign income taxes

HSA distribution for qualified medical expenses, enter the qualified

from line 8. Include state disability insurance (SDI), limited partnership

expenses paid as an adjustment to itemized deductions, on line 40, as a

tax, and income or franchise tax paid by S corporations.

positive amount.

If you are deducting general sales taxes on your federal Schedule A,

Charitable Contribution Carryover Deduction. If you are deducting a

line 5, enter this amount on Schedule CA, line 38.

prior year charitable contribution carryover, and the California carryover

is larger than the federal carryover, enter the additional amount as a

Note: For tax years beginning in 2004 and 2005, the American Jobs

positive number on line 40.

Creation Act of 2004 allows taxpayers to elect to claim state and local

general sales and use taxes as an itemized deduction, instead of

Page 6 Schedule CA (540) Instructions 2004 (REV 03-05)

Instructions For Schedule Ca (540) - State Of California Franchise Tax Board Page 6

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