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losses from passive activities that you held through each PTP you owned

FTB 3801 or form FTB 3802. If a loss is reported on line 1, column (d),

during the tax year.

report the loss on the applicable line of form FTB 3801 or form FTB 3802

to determine how much of the loss is allowable.

See the instructions for federal Schedule K-1 (1065), Passive Activity

Limitations, and federal Publication 925 for more information.

Note: If the LLC income is from activities both within and outside

California, the amount nonresidents or corporate members must report on

D Investment Partnership Income

their California return is a function of the LLC’s apportionment percentage

and allocation of income. Reporting instructions are included in the

If you are a nonresident individual, the amounts in column (e) will

information provided by the LLC. See Cal. Code Regs., tit. 18

generally not be taxable by California (R&TC Section 17955). However,

sections 17951-4 and 25137-1 for more information. In addition, see

nonresident individuals will be taxed on their distributive share of

General Information E.

California source income from an LLC that is an investment partnership if

the income from the qualifying investment securities is interrelated with:

Line 2 – Net Income (Loss) from Rental Real Estate Activities

• Any other business activity of the nonresident member; or

Generally, the income (loss) reported on line 2, column (d), is a passive

• Any other entity in which the nonresident member owns an interest that

activity amount to all members. However, the loss limitations of IRC

is separate and distinct from the investment activity of the LLC and that

Section 469 do not apply to qualified investors in qualified low-income

is conducted in California.

housing projects. If applicable, the LLC will attach a schedule for line 2 to

identify such amounts. You will have to report the California adjustment

If you are a corporate member, the amounts in column (e) will generally

amount from column (c) on Schedule CA (540 or 540NR).

not be taxable in California provided the income from the LLC is the

corporation’s only California source income. However, if the corporation:

Use the following instructions to determine where to enter the line 2

amount.

• Participates in the management of the investment activities of the LLC

or is engaged in a unitary business with another corporation or

• If you have a loss on line 2, column (d) (other than a qualified low-

partnership that participates in the management of the investment

income housing project loss), enter the loss on the applicable line of

activities of the LLC; or

form FTB 3801 or form FTB 3802 to determine how much of the loss is

• Has income attributable to sources within California other than income

allowable. Your share of the loss may be eligible for the special

from the investment partnership;

$25,000 allowance for rental real estate losses. Get the instructions for

form FTB 3801 or form FTB 3802 for more information.

Then the corporation will be taxable on its distributive share of California

source income of the LLC. See R&TC Section 23040.1 for more

See the federal Schedule K-1 (1065) Specific Instructions for box 2,

information.

item 1, and item 2 for more information.

Specific Line Instructions

Note: Report any California adjustment amount from column (c) on

Schedule CA (540 or 540NR) if you are a qualified investor reporting a

qualified low-income housing project loss.

The IRS revised federal Schedule K-1 (1065). As a result of the revision,

lines 4 through 11 (income and deductions) of federal Schedule K-1 (1065)

• If you have only income on line 2, column (d), and no other passive

and California Schedule K-1 (568) are no longer in agreement. Be sure to

losses, enter any California adjustment amount from column (c) on

transfer the appropriate amounts to your California Schedule K-1 (568).

Schedule CA (540 or 540NR). However, if in addition to this passive

activity income, you have a passive activity loss from this LLC or from

Enter the difference between federal and California amounts from

any other source, report the line 2, column (d), income on the

column (c) on Schedule CA (540) if you are a resident or on

Schedule CA (540NR) if you are a nonresident or part-year resident. Also,

applicable line of form FTB 3801 or form FTB 3802.

if you are a nonresident or part-year resident, enter California source

Line 3 – Net Income (Loss) from Other Rental Activities

amounts from the Schedule K-1 (568), column (e), on your Schedule CA

The amount on line 3, column (d) is a passive activity amount for all

(540NR), column E.

members.

F(1) – If this box is checked, the LLC is a PTP as defined in IRC

• If line 3, column (d) is a loss, report the loss on the applicable line of

Section 469(k)(2). Follow the instructions for form FTB 3801 or form

form FTB 3801 or form FTB 3802.

FTB 3802 for reporting income, gains, and losses from PTPs.

• If only income is reported on line 3, column (d), and you have no other

F(2) – If this box is checked, the LLC qualifies as an investment partner-

passive losses, report the California adjustment from column (c) on

ship as defined in R&TC Sections 17955 and 23040.1. If you are a

Schedule CA (540 or 540NR). However, if in addition to this passive

nonresident individual, the amounts in column (e) will generally not be

activity income, you have a passive activity loss from this LLC or from

taxable in California. See Specific Line Instructions D for additional

any other source, report the line 3 income on the applicable line of form

information.

FTB 3801 or form FTB 3802.

Nonresident and Part-Year Resident Members, get FTB Pub. 1100,

Line 4a through Line 4e – Portfolio Income (Loss)

Taxation of Nonresidents and Individuals Who Change Residency.

• Line 4a, enter the amount of interest income from federal Schedule K-1

Part-year residents members must consider their period of residency and

(1065), box 5;

nonresidency in the computation of total California income.

• Line 4b, enter the amount of dividend income from federal

Note: The specific line instructions below that instruct you to enter

Schedule K-1 (1065), box 6a and box 6b;

information from Schedule K-1 (568), column (d), on other forms, apply to

• Line 4c, enter the amount of royalties from federal Schedule K-1

resident members. When the instructions make reference to column (d),

(1065), box 7;

nonresident members should take information from columns (c), (d), and

• Line 4d, enter the amount of net capital gain (loss) from federal

(e) and apply the information to the appropriate line relating to computa-

Schedule K-1 (1065), box 8 and box 9a; and

tion of total income and income from California sources.

• Line 4e, enter the amount of other portfolio income from federal

A Income (Loss)

Schedule K-1 (1065), box 11a.

Portfolio income (loss), referred to as “portfolio” in these instructions, is

Line 1 – Ordinary Income (Loss) from Trade or Business

generally not subject to the passive activity limitations of IRC Section 469.

Activities

Portfolio income includes interest, dividend, royalty income, and gain or

loss on the sale of property held for investment. If you have amounts on

The amount reported on line 1, column (d), is your share of the ordinary

Schedule K-1 (568), line 4a through line 4e, report these amounts as

income (loss) from the trade or business activities of the LLC. For

follows:

individual members, where this amount is reported depends on whether or

not this amount is a passive activity.

• Line 4a, column (c) — Report on Schedule CA (540 or 540NR), line 8,

column B or column C, whichever is applicable;

If, in addition to this passive activity income, you have a passive activity

loss from this LLC or from any other source, report the income on form

Page 36 Schedule K-1 (568) Instructions 2005

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 23

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