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2015 Instructions for Form FTB 3801-CR

Passive Activity Credit Limitations

These instructions are based on the Internal Revenue Code (IRC) as of January 1, 2015, and the California Revenue and Taxation Code (R&TC).

General Information

A Purpose

Nonresident

In determining California taxable income,

In general, for taxable years beginning on or

Use form FTB 3801-CR, Passive Activity Credit

nonresidents compute prior year items by

after January 1, 2015, California law conforms

Limitations, to determine whether you have a

taking into account only those items with a

to the Internal Revenue Code (IRC) as of

passive activity credit for the current taxable

California source, subject to any limitations

January 1, 2015. However, there are continuing

year and, if so, how much of the credit is

provided by law. For example, passive losses

differences between California and federal

allowed for the current year. The amount of the

are limited to passive gains (IRC Section 469

law. When California conforms to federal tax

credit that is disallowed in the current year is

and R&TC Sections 17551 and 17561). Make

law changes, we do not always adopt all of

carried forward.

this computation even if you were always a

the changes made at the federal level. For

nonresident or a former resident who moved

B Special Note

more information, go to ftb.ca.gov and search

out of California.

for conformity. Additional information can

Generally, California law is the same as

Part-Year Resident

be found in FTB Pub. 1001, Supplemental

federal law concerning passive activity credit

California taxes part-year residents as

Guidelines to California Adjustments, the

limitations. Get federal Form 8582-CR for

residents for the period of the year they were

instructions for California Schedule CA (540 or

definitions.

California residents and as nonresidents for

540NR), and the Business Entity tax booklets.

Personal service corporations and closely held

the period of the year they were nonresidents.

The instructions provided with California tax

corporations subject to the passive activity

Therefore, a part-year resident must compute

forms are a summary of California tax law

rules must use form FTB 3802, Corporate

any suspended passive losses as if they were

and are only intended to aid taxpayers in

Passive Activity Loss and Credit Limitations,

a California resident for all prior years and as

preparing their state income tax returns. We

instead of form FTB 3801, Passive Activity

if they were a nonresident for all prior years.

include information that is most useful to the

Loss Limitations, and form FTB 3801-CR.

These amounts must then be prorated based

greatest number of taxpayers in the limited

upon the period of California residency and the

S Corporations

space available. It is not possible to include

period of nonresidency for the year.

The passive activity loss (PAL) rules apply as

all requirements of the California Revenue

Renewal Communities

if the S corporation was an individual. This

and Taxation Code (R&TC) in the tax booklets.

California law does not conform to the tax

means that losses from passive activities

Taxpayers should not consider the tax booklets

incentives related to “renewal communities.”

may not be used to offset nonpassive income,

as authoritative law.

except for $25,000 in losses from rental

Expense treatment for small business,

Registered Domestic Partners (RDP)

real estate activities. See IRC Section 469(i).

IRC Section 179(b)(1): California law generally

For purposes of California income tax,

However, the material participation rules apply

conforms to the federal rules for expensing

references to a spouse, husband, or wife also

as if the S corporation was a closely held

IRC Section 179. However, federal limitation

refer to a California RDP, unless otherwise

corporation. The material participation rules for

amounts may be different than California

specified. When we use the initials RDP they

closely held corporations are explained in the

limitation amounts. For California purposes,

refer to both a California registered domestic

instructions for federal Form 8810, Corporate

the maximum IRC Section 179 expense

“partner” and a California registered domestic

Passive Activity Loss and Credit Limitations.

deduction allowed for 2015 is $25,000.

“partnership,” as applicable. For more

See IRC Section 469(h)(4) and the related

The following may affect the computation of

information on RDPs, get FTB Pub. 737, Tax

regulations for more information.

your passive activity credit limitations:

Information for Registered Domestic Partners.

To compute your California passive activity

Material Participation in Real Property

Military Personnel

credit limitations for S corporations, use the

Business – IRC Section 469(c)(7): Beginning

Servicemembers domiciled outside of

worksheets in the instructions for federal

in 1994, and for federal purposes only, rental

California, and their spouses/RDPs, may

Form 8582-CR using California amounts.

real estate activities of taxpayers engaged in

exclude the servicemember’s military

Enter the amount from line 20 of Form 100S,

a real property business are not automatically

compensation from gross income when

California S Corporation Franchise or Income

treated as a passive activity. California did

computing the tax rate on nonmilitary income.

Tax Return, on line 10 and line 22 of form

not conform to this provision. For California

Requirements for military servicemembers

FTB 3801-CR in place of the federal modified

purposes, all rental activities are treated

domiciled in California remain unchanged.

adjusted gross income.

as passive activities. Therefore, an election

Military servicemembers domiciled in

under IRC section 469(c)(7) is inapplicable

C Who Must File

California must include their military pay in

for purposes of California personal income

gross income. In addition, they must include

Form FTB 3801-CR is filed by individuals,

or franchise tax and taxpayers should

their military pay in California source income

estates, trusts, and S corporations with any of

group rental activities without regard to

when stationed in California. However, military

the following credits from passive activities:

IRC section 469(c)(7). Get federal Form 8582,

pay is not California source income when

Passive Activity Loss Limitations, for general

Credit

Code

a servicemember is permanently stationed

rules regarding grouping of activities.

Orphan drug credit carryover

185

outside of California. Beginning in 2009,

Low-income housing

172

the Military Spouses Residency Relief Act

Disclosure Requirements for Groupings

Research

183

may affect the California income tax filing

On January 24, 2010, the Internal Revenue

requirements for spouses of military personnel.

Service issued Revenue Procedure 2010-13

Enter the code number for your credit on your

For more information, get FTB Pub. 1032, Tax

regarding disclosure requirements for

tax return when you are able to claim the credit.

Information for Military Personnel.

groupings. California generally conforms

to Revenue Procedure 2010-13, which is

effective for tax years beginning on or after

January 25, 2010. A separate disclosure

statement is not required for state purposes.

Get federal Form 8582-CR, Passive Activity

Credit Limitations, for more information.

FTB 3801-CR Instructions 2015 Page 1

Instructions For Form Ftb 3801-Cr Draft - Passive Activity Credit Limitations - 2015

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