Instructions For Form Ftb 3801-Cr - Passive Activity Credit Limitations - 2008

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2008 Instructions for Form FTB 3801-CR
Passive Activity Credit Limitations
These instructions are based on the Internal Revenue Code (IRC) as of January 1, 2005, and the California Revenue and Taxation Code (R&TC).
General Information
taking into account only those items with a
as of January 1, 1994, must be amortized over
California source, subject to any limitations
the remaining federal amortization period.
In general, California law conforms to
provided by law. For example, passive losses
Therefore, you may have a difference in net
the Internal Revenue Code (IRC) as of
are limited to passive gains (IRC Section 469
income (loss) from passive activities which
January 2005. However, there are continuing
and R&TC Sections 17551 and 17561). Make
involve amortization of certain intangibles.
differences between California and federal law.
this computation even if you were always a
A Purpose
When California conforms to federal tax law
nonresident or a former resident who moved
changes, we do not always adopt all of the
out of California.
Use form FTB 3801-CR, Passive Activity Credit
changes made at the federal level. For more
Limitations, to determine whether you have a
Part-Year Resident
information, go to our website at
passive activity credit for the current taxable
California taxes part-year residents as if they
ftb.ca.gov and search for conformity.
year and, if so, how much of the credit is
were residents for all prior years. Therefore,
Additional information can be found in FTB
allowed for the current year. The amount of the
a nonresident who becomes a resident must
Pub. 1001, Supplemental Guidelines to
credit that is disallowed in the current year is
restate all prior year items using the total
California Adjustments, the instructions for
carried forward.
taxable income for all prior years.
California Schedule CA (540 or 540NR), and
B Special Note
the Business Entity tax booklets.
Renewal Communities
California law does not conform to the tax
The instructions provided with California tax
Generally, California law is the same as
incentives related to “renewal communities.”
forms are a summary of California tax law
federal law concerning passive activity credit
California law does provide a variety of
and are only intended to aid taxpayers in
limitations. Get federal Form 8582-CR, Passive
independent, state-only economic development
preparing their state income tax returns. We
Activity Credit Limitations, for definitions.
area tax incentives to encourage revitalization
include information that is most useful to the
Personal service corporations and closely held
of special designated areas. The Government
greatest number of taxpayers in the limited
corporations subject to the passive activity
Code provides for the designation of enterprise
space available. It is not possible to include
rules must use form FTB 3802, Corporate
zones, Local Agency Military Base Recovery
all requirements of the California Revenue
Passive Activity Loss and Credit Limitations,
Areas (LAMBRAs), a Targeted Tax Area (TTA),
and Taxation Code (R&TC) in the tax booklets.
instead of form FTB 3801, Passive Activity
and Manufacturing Enhancement Areas
Taxpayers should not consider the tax booklets
Loss Limitations, and form FTB 3801-CR.
(MEAs). California law does not provide for
as authoritative law.
a lower capital gains rate in any situation.
S Corporations
Registered Domestic Partners (RDP)
California law generally conforms to the federal
The passive activity loss (PAL) rules apply as
For purposes of California income tax,
rules for expensing IRC Section 179 property
if the S corporation was an individual. This
references to a spouse, a husband, or a wife
with the exception that California law allows
means that losses from passive activities may
also refer to a California registered domestic
a maximum deduction of $25,000. In lieu of
not be used to offset nonpassive income,
partner (RDP), unless otherwise specified.
this deduction, the California Personal Income
except for $25,000 in losses from rental
When we use the initials RDP they refer to both
Tax law allows a taxpayer with a business in
real estate activities. See IRC Section 469(i).
a California registered domestic “partner” and
an “Economic Development Area” to elect to
However, the material participation rules apply
a California registered domestic “partnership,”
expense $20,000 to $40,000 (depending on
as if the S corporation was a closely held
as applicable. For more information on
the designation) of certain specified equipment
corporation. The material participation rules for
RDPs, get FTB Pub. 737, Tax Information for
used in the business.
closely held corporations are explained in the
Registered Domestic Partners.
Expense treatment for small business, IRC
instructions for federal Form 8810, Corporate
Round Cents to Dollars – Round cents to the
Section 79(b)(): California law generally
Passive Activity Loss and Credit Limitations.
nearest whole dollar. For example, round $50.50
conforms to the federal rules for expensing IRC
See IRC Section 469(h)(4) and the related
up to $51 or round $25.49 down to $25.
Section 179 property with the exception that
regulations for more information.
Military Personnel – Servicemembers
California law allows a maximum deduction of
To compute your California passive activity
domiciled outside of California, and their
$25,000.
credit limitations for S corporations, use the
spouses/RDPs, may exclude the
The following may affect the computation of
worksheets in the instructions for federal
servicemember’s military compensation from
your passive activity credit limitations:
Form 8582-CR using California amounts.
gross income when computing the tax rate on
Enter the amount from line 21 of Form 100S,
Material Participation in Real Property
nonmilitary income. Requirements for military
California S Corporation Franchise or Income
Business – IRC Section 469(c)(7): Beginning
servicemembers domiciled in California remain
Tax Return, on line 10 and line 22 of form
in 1994, and for federal purposes only, rental
unchanged. Military servicemembers domiciled
FTB 3801-CR in place of the federal modified
real estate activities of taxpayers engaged in
in California must include their military pay in
adjusted gross income.
a real property business are not automatically
gross income. In addition, they must include
treated as a passive activity. California did
C Who Must File
their military pay in California source income
not conform to this provision. For California
when stationed in California. However, military
Form FTB 3801-CR is filed by individuals,
purposes, all rental activities are treated as
pay is not California source income when
estates, trusts, and S corporations with any of
passive activities.
a servicemember is permanently stationed
the following credits from passive activities:
outside of California. For more information, get
Amortization of certain intangibles (IRC
Credit
Code
FTB Pub. 1032, Tax Information for Military
Section 97): Property classified as IRC
Orphan drug credit carryover
185
Section 197 property under federal law is
Personnel.
Low-income housing
172
also IRC Section 197 property for California
Nonresident
Research
183
purposes. There is no separate California
In determining California taxable income,
election required or allowed. However,
Enter the code number for your credit on your
nonresidents compute prior year items by
for California purposes, in the case of
return when you are able to claim the credit.
IRC Section 197 property acquired before
January 1, 1994, the California adjusted basis
FTB 3801-CR Instructions 2008 Page 

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