Instructions For Form Ftb 3801-Cr - Passive Activity Credit Limitations - 2001

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2001 Instructions for Form FTB 3801-CR
Passive Activity Credit Limitations
These instructions are based on the Internal Revenue Code (IRC) as of January 1, 1998 and the California Revenue and Taxation Code (R&TC).
General Information
Personal service corporations and closely held
$75,000 ($37,500 if married filing a separate
corporations subject to the passive activity rules
return and you lived apart the entire year).
In general, California law conforms to the
must use form FTB 3802, Corporate Passive
E Passive Activity Credit
Internal Revenue Code (IRC) as of January 1,
Activity Loss and Credit Limitations, instead of
Carryovers
form FTB 3801, Passive Activity Loss Limita-
1998. However, there are continuing differ-
tions, and form FTB 3801-CR.
ences between California and federal law.
Passive activity credits are suspended and
California has not conformed to most of the
S Corporations
carried forward indefinitely. Unlike losses,
changes made to the IRC by the federal
The passive activity loss (PAL) rules apply as if
suspended credits are not allowed when you
Internal Revenue Service Restructuring and
the S corporation was an individual. This means
dispose of the activity. However, you may elect
Reform Act of 1998 (Public Law 105-206) and
that losses from passive activities may not be
to increase your basis (by the amount of the
the Ticket to Work and Work Incentives
used to offset nonpassive income, except for
original basis reduction) to the extent the credit
Improvement Act of 1999 (Public Law 106-
$25,000 in losses from rental real estate
has not been used.
170). California has not conformed to any of
activities. See IRC Section 469(i). However, the
The credit becomes allowable under the passive
the changes made by the Tax and Trade Relief
material participation rules apply as if the
loss rules when there is sufficient passive
Extension Act of 1998 (Public Law 105-277),
S corporation was a closely held corporation.
income to allow its use or it is within the scope of
The material participation rules for closely held
the Miscellaneous Trade and Technical
the rental real estate rule. Once the credit
corporations are explained in the instructions
Corrections Act of 1999 (Public Law 106-36),
becomes allowable under the passive loss rule, it
for federal Form 8810, Corporate Passive
the FSC Repeal and Extraterritorial Income
is subject to the other limitations applicable to
Activity Loss and Credit Limitations. See IRC
Exclusion Act of 2000 (Public Law 106-519),
the use of credits, such as the limitation that
Section 469(h)(4) and the related regulations for
the Consolidated Appropriations Act of 2001
credits may not reduce regular tax below
more information.
(Public Law 106-554), and the Economic
tentative minimum tax.
To compute your California passive activity
Growth and Tax Relief Reconciliation Act of
In addition, the treatment of passive activity
credit limitations for S corporations, use the
2001 (Public Law 107-16).
credits is determined in all respects by the
worksheets in the instructions for federal
Expense treatment for small business (IRC
general rules applicable to those credits,
Form 8582-CR using California amounts. Enter
Section 179(b)(1)): California law conforms to
including carryover periods.
the amount from line 21 of Form 100S,
federal law regarding the IRC Section 179(b)(1)
California S Corporation Franchise or Income
F Overview of Form
deduction. For 2001, the maximum deduction is
Tax Return, on line 10 and line 22 of form
$24,000.
The form consists of six parts.
FTB 3801-CR in place of the federal modified
The following may affect the computation of
adjusted gross income.
Part I — 2001 Passive Activity Credits
your passive activity credit limitations:
Use Part I to combine your credits from passive
C Who Must File
Passive loss rules (IRC Section 469(c)(7)):
activities to determine if you have passive
Beginning in 1994, and for federal purposes
Form FTB 3801-CR is filed by individuals,
activity credits for 2001.
only, rental real estate activities of taxpayers
estates, trusts, and S corporations with any of
If your credits from all passive activities exceed
engaged in a real property business are not
the following credits from passive activities:
the tax attributable to net passive income, you
automatically treated as a passive activity.
Credit
Code
may have a suspended passive activity credit for
California did not conform to this provision. For
Orphan drug credit carryover
185
2001. Generally, you have net passive income if
California purposes, all rental activities are
Low-income housing credit
172
form FTB 3801, line 3 shows income. See the
treated as passive activities.
Research credit
183
instructions for form FTB 3801-CR, line 6 for
Amortization of certain intangibles (IRC
Targeted jobs credit*
166
details.
Section 197): Property classified as IRC
*For credit generated prior to January 1, 1996.
Part II — Special Allowance for Rental Real
Section 197 property under federal law is also
Note: Make sure to enter the code number for
Estate Activities with Active Participation
IRC Section 197 property for California purposes;
your credit on your return when you are able to
Use Part II to figure the credit allowed if you
there is no separate California election required
claim the credit.
have any credits from rental real estate activities
or allowed. However, for California purposes, in
in which you actively participated (other than
the case of IRC Section 197 property acquired
D Passive Activities
low-income housing credit). See the instruc-
before January 1, 1994, the California adjusted
tions for federal Form 8582-CR, “Rental
See the instructions for federal Form 8582-CR
basis as of January 1, 1994, must be amortized
Activities.”
for information about passive activities and
over the remaining federal amortization period.
passive activity credits.
Therefore, you may have a difference in net
Part III — Special Allowance for Low-Income
income (loss) from passive activities which
Housing Credits for Property Placed in Service
Dispositions
.
involve amortization of certain intangibles
Before 1990 (or from Pass-Through Interests
Unallowed passive activity credits, unlike
Acquired Before 1990)
unallowed passive activity losses, are not
A Purpose
Use Part III to figure the credit allowed if you
allowable when you dispose of your interest in
have any low-income housing credits for
Use form FTB 3801-CR to determine whether
an activity in a taxable transaction. However,
property placed in service before 1990. Also,
you have a passive activity credit for the current
you may elect to increase the basis of the credit
use this part if your low-income housing credit
taxable year and, if so, how much of the credit
property by the amount of the original basis
is from a partnership, S corporation, or other
is allowed for the current year. The amount of
reduction of the property to the extent that the
pass-through entity in which you acquired your
credit has not been allowed under the passive
the credit that is unallowed is carried forward.
interest before 1990, regardless of the date the
activity rules. No basis adjustment may be
B Special Note
property was placed in service.
elected on a partial disposition of an interest in a
passive activity.
Generally, California law is the same as federal
Part IV — Special Allowance for Low-Income
law concerning passive activity credit limita-
Caution: In computing the special allowance for
Housing Credit for Property Placed in Service
tions. See the instructions for federal
rental real estate activities with active participa-
After 1989
Form 8582-CR, Passive Activity Credit Limita-
tion, the dollar limitation for the low-income
Use Part IV to figure the credit allowed if you
tions, for definitions.
housing credit is more than the amount allowed
have any low-income housing credits for
under federal law. The California limitation is
FTB 3801-CR Instructions 2001 Page 1

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