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• Line 4b, column (c) — Report on Schedule CA (540 or 540NR), line 9,

Line 7 items may include:

column B or column C, whichever is applicable;

• LLC gains from disposition of farm recapture property (get

• Line 4c, column (c) — Report on Schedule CA (540 or 540NR), line 17,

Schedule D-1) and other items to which IRC Section 1252 applies;

column B or column C, whichever is applicable;

• Recoveries of bad debts, prior taxes, and delinquency amounts (IRC

• Line 4d, column (d) — Report on Schedule D (540 or 540NR); and

Section 111). Report the amount from line 7, column (c), on

• Line 4e, column (d) — Report on applicable schedule.

Schedule CA (540 or 540NR), line 21f, column B or column C,

Caution: Generally, amounts reported on line 4d and line 4e are gains or

whichever is applicable;

losses attributable to the disposition of property held for investment and

• Gains and losses from wagering (IRC Section 165(d)). Report the

are, therefore, classified as portfolio income (loss). However, if an amount

amount from line 7, column (c), on Schedule CA (540 or 540NR),

reported on line 4d or line 4e, column (d), is a passive activity amount, the

line 21f, column B or column C, whichever is applicable;

LLC should identify the amount.

• Any income, gain, or loss to the LLC under IRC Section 751. Report this

amount on Schedule D-1, line 10;

The LLC uses line 4e, column (d), to report portfolio income other than

• Specially allocated ordinary gain or loss. Report this amount on

interest, dividend, royalty, and capital gain (loss) income. The LLC should

Schedule D-1, line 10;

attach a schedule to Schedule K-1 (568) to tell you what kind of portfolio

• Net gain or loss from involuntary conversions due to casualty or theft.

income is reported on line 4e, column (d). An example of portfolio income

The LLC will provide a schedule that shows the California amounts to

that could be reported on line 4e, column (d), is from a real estate

be entered on federal Form 4684, Casualties and Thefts, Section B,

mortgage investment conduit (REMIC) in which the LLC is a residual

Part II, line 37, column (b)(i), column (b)(ii), and column (c); and

interest holder.

• Eligible gain from the sale or exchange of qualified small business

If the LLC has a residual interest in a REMIC, it will report your share of

stock (as defined in R&TC Section 18152.5, and issued after

REMIC taxable income (net loss) on the schedule. Report the adjustment

August 10, 1993). Also, the name of the corporation that issued the

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

stock and the adjusted basis of that stock should be reported on the

also report your share of “excess inclusion” and your share of IRC

attachment to Schedule K (568) and Schedule K-1 (568). Any differ-

Section 212 expenses. If you itemize your deductions on federal Sche-

ences between IRC Section 1202 and R&TC Section 18152.5 should be

dule A (1040), you may deduct these IRC Section 212 expenses as a

included on line 7, column (c).

miscellaneous deduction.

B Deductions

Line 5 – Guaranteed Payments to Members

Line 8 – Charitable Contributions

Enter the amount of guaranteed payments to members from federal

Schedule K-1 (1065), box 4.

The LLC will provide a schedule that shows which contributions were

subject to the 50%, 30%, and 20% limitations. See the instructions for

Amounts on this line are not normally part of a passive activity. If there is

federal Form 1040, for more information.

an amount on Schedule K-1 (568), line 5, column (c), enter this amount on

Schedule CA (540 or 540NR), line 21f, column B or column C, whichever

Note: California has not conformed to any of the provisions of the Katrina

is applicable.

Emergency Relief Act of 2005.

If there is an amount on Schedule K-1 (568), line 8, column (c), enter this

Line 6 – Net Gain (Loss) Under IRC Section 1231

amount on Schedule CA (540 or 540NR), line 39.

(Other Than Due to Casualty or Theft)

Line 9 – Expense Deduction for Recovery Property

Enter the amount of net gain (loss) under IRC Section 1231 from federal

Schedule K-1 (1065), box 10.

Enter the amount of expense deduction for recovery property from federal

Schedule K-1 (1065), box 12.

If the amount on line 6 relates to rental activity, the IRC Section 1231 gain

(loss) is a passive activity amount. If the amount relates to a trade or

The maximum amount of expense deduction for recovery property (IRC

business activity and you, as a member, did not materially participate, the

Section 179 deduction) that you can claim for all sources is $25,000. The

IRC Section 1231 gain (loss) is a passive activity amount.

$25,000 limit is reduced if the total cost of IRC Section 179 property

placed in service during the year exceeds $200,000.

• If the amount is not a passive activity amount report it on

Schedule D-1, line 2, column (g). You do not have to complete

The LLC will provide information on your share of the IRC Section 179

column (b) through column (f). Write “From Schedule K-1 (568)”

deduction and of the cost of the LLC’s IRC Section 179 property so that

across these columns.

you can compute this limitation. Your IRC Section 179 deduction is also

• If a gain is reported on line 6, column (d), and it is a passive activity

limited to your taxable income from all of your trades or businesses. See

amount report the gain on Schedule D-1, line 2, column (g), and be

form FTB 3885A, Depreciation and Amortization Adjustments, and get

sure to see “Passive Loss Limitations” in the instructions for

federal Publication 534, Depreciating Property Placed In Service Before

Schedule D-1.

1987, for more information.

• If a loss is reported on line 6, column (d), and it is a passive activity

If the IRC Section 179 deduction is a passive activity amount, report it on

amount see “Passive Loss Limitations” in the instructions for

the applicable line of form FTB 3801. If it is not a passive activity amount

Schedule D-1. You must use form FTB 3801 to determine how much of

and there is an amount on Schedule K-1 (568), line 9, column (c), enter

the loss is allowed on Schedule D-1.

this amount on Schedule CA (540 or 540NR), line 21f, column B or

column C, whichever is applicable.

Line 7 – Other Income (Loss)

Refer to R&TC Sections 17267.2, 17267.6, and 17268 on how to figure the

Enter the amount of other income (loss) from federal Schedule K-1 (1065),

expense deduction for recovery property in an economic development area.

box 11.

Line 10 – Deductions Related to Portfolio Income

Amounts reported on this line are other items of income (loss) not

included on line 1 through line 6. The LLC should give you a description

Amounts entered on this line are the deductions that are clearly and

for each of these items.

directly allocable to portfolio income (other than investment interest

expense and expenses from a REMIC). If you have an amount on

Use the following instructions to:

Schedule K-1 (568), line 10, column (c), enter this amount on Schedule CA

• Report income or gain (not losses) from passive activities; or

(540 or 540NR), line 21f, column B or column C, as applicable. If any of

• Report income, gain, or losses from all other passive activities.

the line 10 amount should not be reported on Schedule CA (540 or

If you have losses from passive activities, or a combination of income,

540NR), the LLC should identify these amounts.

gains, and losses from passive activities, you must first complete form

Line 11 – Other Deductions

FTB 3801 or form FTB 3802 to determine if any of your losses are limited by

Amounts on this line are deductions not included on line 8 through line 10.

the passive loss rules. Use the instructions below to report passive income

If there is an amount on Schedule K-1 (568), line 11, column (c), enter this

and losses after the passive loss limitations have been computed.

Schedule K-1 (568) Instructions 2005

Page 37

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 24

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