Form 3805z - Enterprise Zone Deduction And Credit Summary - 1998 Page 5
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Part IV Net Interest
Instructions for Worksheet IV —
The loan must be made after the enterprise
zone was designated.
Deduction for Lenders
Net Interest Deduction for Lenders
In addition, the following annual requirements
apply:
A deduction from income is allowed for the
Line 1, column (e) – Enter the direct expenses
•
amount of net interest received from loans made
incurred in making the loan. Attach an additional
Borrower must continue business activities in
to a trade or business located within an
schedule(s) if necessary.
the enterprise zone; and
•
enterprise zone.
Payment must be received before the enter-
Examples of direct expenses include:
prise zone expires.
•
Net interest is defined as the full amount of
Commissions paid to a loan representative;
•
interest received, less any direct expenses
Example: You lend $5,000 to an enterprise zone
Costs incurred in funding the loan; and
•
incurred in making the loan. Examples of direct
business that meets the requirements listed
Other costs of the loan.
expenses include, but are not limited to:
above. You receive $550 in interest and incur
Line 2 – Enter the amount from line 2,
•
$300 in expenses directly related to the loan.
Commissions paid to a loan representative;
column (b) on form FTB 3805Z, Side 1, line 3,
•
You may deduct $250 ($550 - $300) of net
Costs incurred in funding the loan; and
and on your California tax return or schedule as
•
interest from your taxable income.
Other costs of the loan.
follows:
Record Keeping. You should maintain records
•
Types of loans that qualify for this deduction
Form 100, line 14;
for each loan showing:
•
include business loans, mortgages and loans
Form 100S, line 12, Form 100S, Schedule K,
•
from noncommercial sources. The following
The identity and location of the trade or
line 10 and Schedule K-1 (100S), line 10;
•
requirements must be met to qualify for the
business to which you lent the money;
Form 109, Part II, line 24;
•
•
deduction:
The amount of the loan, interest received and
Schedule CA (540), column B, on the
•
any direct expenses associated with the loan;
The loan must be made to a trade or busi-
applicable line for your business activity;
•
and
ness located solely within an enterprise zone;
Schedule CA (540NR), column B, on the
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The use of the loan.
The money lent must be used strictly for the
applicable line for your business activity;
•
borrower’s business activities within the enter-
Form 541, line 15a;
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prise zone;
Form 565, Schedule K, line 11 and
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The lender may not have equity or other own-
Schedule K-1 (565), line 11; or
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ership interest in the borrower’s trade or busi-
Form 568, Schedule K, line 11 and
ness; and
Schedule K-1 (568), line 11.
Worksheet IV
Net Interest Deduction for Lenders — Enterprise Zones
(a) Name and location of
(b) Date
(c) Amount
(d) Interest
(e) Direct
(f) Net interest
business to which loan was made
of loan
of loan
received
expenses
(column (d) minus
incurred
column (e))
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2 Total. Add the amounts in column (f). See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Page 10 FTB 3805Z Booklet 1998
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