Instructions For Schedule D-1 - Sales Of Business Property - State Of California Franchise Tax Board

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Instructions for Schedule D-1
Sales of Business Property
(Also, involuntary conversions and recapture amounts under IRC Sections 179 and 280F and R&TC Sections 17267.2, 17267.6, 17268, 24356.5, 24356.6, 24356.7, and
24356.8). References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2001, and to the California Revenue and Taxation Code (R&TC).
General Information
3. The disposition of noncapital assets (other
Use form FTB 3805E, Installment Sale
than inventory or property held primarily
Income, to report the sale on the installment
In general, California law conforms to the
for sale to customers in the ordinary
method. Also use form FTB 3805E to report
Internal Revenue Code (IRC) as of January 1,
course of your trade or business).
any payment received in 2003 from a previous
2001. However, there are continuing
4. The disposition of capital assets not
installment sale.
differences between California and federal law.
reported on Schedule D (100, 100W, 100S,
If you elect not to use the installment method
It should be noted that California does not
540, or 540NR).
for California, report the full amount of the
always conform to the entire provisions of a
5. The recapture of IRC Section 179 and
gain on a timely filed return (including
public law. California has conformed to some
R&TC Sections 17267.2, 17267.6, and
extensions).
of the changes made to the Internal Revenue
17268 deductions for partners, members,
Property subject to IRC Section 179 Expense
Code after January 1, 2001, including some
and shareholders from property distribu-
Deduction Recapture. If you have a gain from
provisions of the Economic Growth and Tax
tions by partnerships, limited liability
the sale, exchange or disposition for which an
Relief Reconciliation Act of 2001 (Public Law
companies (LLCs) (classified as partner-
IRC Section 179 expense deduction was
107-16), the Victims of Terrorism Tax Relief
ships), and S corporations, respectively.
claimed in a prior year, special rules apply.
Act of 2001 (Public Law 107-134), and the
See IRC Section 179 Recapture under
Partnerships, partners, members, and
Job Creation and Worker Assistance Act of
General Information B, Special Rules, for
shareholders should follow the instructions in
2002 (Public Law 107-147). California has
the reporting requirements.
federal Form 4797.
not conformed to any of the provisions of the
6. The computation of recapture amounts
Jobs and Growth Tax Relief Reconciliation Act
LLCs and S corporations should follow the
under IRC Sections 179 and 280F when
of 2003 (Public Law 108-27) and the Military
instructions in federal Form 4797 with the
the business use of IRC Section 179 or
Family tax relief Act of 2003 (Public
exception that the amount of gain on property
280F property drops to 50% or less and
Law 108-121).
subject to the IRC Section 179 recapture must
for property that ceases to be “qualified
be included in the total income for the LLC
property” under R&TC Sections 17267.2,
For taxable years beginning on or after
and the taxable income for the S corporation.
17267.6, 17268, 24356.5, 24356.6,
January 1, 2002, California law was changed
24356.7, and 24356.8.
to clarify the method used to calculate loss
• LLCs report the gain on property subject to
carryovers, deferred deductions, and deferred
the IRC Section 179 recapture on line 17d
B Special Rules
income for nonresident and part-year resident
of the Limited Liability Company Income
Combined Reporting Groups. Each corpora-
taxpayers. This changed the tax computation
Worksheet.
tion that is a member of a combined reporting
to recognize those items, and established a
• S corporations report the gain on property
group should complete this form to report its
new method to determine percentages for
subject to the IRC Section 179 recapture
share of business gains and losses appor-
computing tax for all nonresidents and part-
on Form 100S, line 7.
tioned to California and its nonbusiness gains
year residents. The nonresident tax forms
Note: The gain on property subject to the IRC
and losses that are allocated to California. For
(Long and Short Form 540NR) have been
Section 179 recapture should be reported on
more information, see Cal. Code Regs., tit. 18
revised to more clearly show that nonresi-
the Schedule K and Schedule K-1 as supple-
section 25106.5-2 and FTB Pub. 1061,
dents pay tax to California only on their
mental information as instructed on the
Guidelines for Corporations Filing a Combined
California taxable income. For further
federal Form 4797.
Report.
information, get FTB Pub. 1100, Taxation of
The LLC or the S corporation must provide the
Nonresidents and Individuals Who Change
Casualties and Thefts. Complete federal
following information with respect to a
Residency.
Form 4684, Casualties and Thefts, using
disposition of business property if an IRC
California amounts.
A Purpose
Section 179 expense deduction was claimed
Exchange of “Like-Kind” Property. Complete
in prior years:
Use Schedule D-1 to distinguish IRC Sec-
and attach federal Form 8824, Like-Kind
tion 1231 property between ordinary loss and
a. Description of the property.
Exchanges, using California amounts.
capital gain.
b. Date the property was acquired.
Report the exchange of like-kind property,
c. Date the property was sold.
Complete and attach this form to your return
even if no gain or loss is recognized. Write
d. Gross sales price.
only if your California gains or losses from the
“Like-Kind Exchange from Form 8824” as the
e. Cost or other basis plus expense of sale
sale or exchange of assets used in a trade or
property description, and enter the gain or
(not including the entity's basis
business are different from your federal gains
loss, if any, from Form 8824 (using California
reduction in the property due to IRC
or losses. (For common examples of items to
amounts) on line 5 or line 16, whichever
Section 179 expense deduction).
report on this schedule, see the instructions
applies. If an exchange was made with a
f. Depreciation allowed or allowable (not
for federal Form 4797, Sales of Business
related party, write “Related Party Like-Kind
including the IRC Section 179 expense
Property.)
Exchange” in the top margin of Schedule D-1.
deduction).
Use this form to report:
Installment Sales. If you sold property at a
g. Amount of IRC Section 179 expense
1. The sale or exchange of:
gain and you will receive a payment in a tax
deduction (if any).
year after the year of sale, you must report the
h. An indication if the disposition is from a
• Trade or business property;
sale on the installment method unless you
casualty or theft.
• Depreciable and amortizable property;
elect not to do so.
i. If this is an installment sale, any
• Oil, gas, and geothermal property; and
information needed to complete form
• IRC Section 126 property.
If you are a nonresident or part-year resident,
FTB 3805E, Installment Sale Income.
your calculation may change as a result of
2. The involuntary conversion (other than
Assembly Bill 1115 (Stats. 2001, Ch. 920). Get
Passive Loss Limitations. If you are a
casualty or theft) of trade or business
FTB Pub. 1100, Taxation of Nonresidents and
nonresident or part-year resident, your
property and capital assets held in
Individuals Who Change Residency.
calculation may change as a result of
connection with a trade or business or a
Assembly Bill 1115 (Stats. 2001, Ch. 920). Get
transaction entered into for profit.
Schedule D-1 Instructions 2003 Page 1

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