Instructions For Schedule P (Form 541) - 2016 (Page 3 of 7) in pdf

Investment interest expense. Also enter on this line any investment

Property placed in service after 1998. For property placed in

interest expense adjustment. If you completed form FTB 3526,

service after 1998, no adjustment is necessary if the property is

Investment Interest Expense Deduction, refigure the investment interest

IRC Section 1250(c) property or tangible property, other than IRC

expense using a second form FTB 3526.

Section 1250(c) property; depreciated using the straight-line or 150%

declining balance method for the regular tax. For any other tangible

Complete line 1 through line 8. Follow the form FTB 3526 instructions

property, use the 150% declining balance method, switching to

for line 1 through line 8, except for the following:

straight-line the first taxable year it gives a larger deduction, and the

• When completing line 1, include any interest expense from

same convention and recovery period used for the regular tax.

Schedule P (541), line 4a, that was paid or accrued on indebtedness

For more information, get federal Schedule I (Form 1041); federal

properly attributable to property held for investment within the

Publication 946, How to Depreciate Property; or see IRC Section 168(g).

meaning of IRC Section 163(d)(5). An example is interest on a home

equity loan whose proceeds were invested in stocks or bonds. This

Certain grapevines. Grapevines that were replanted as a result of

interest might be deductible as home mortgage interest for regular

phylloxera infestation or Pierce’s Disease that are depreciated over

tax, but is not deductible for AMT.

5 years for regular tax, must be depreciated over 10 years for AMT.

• When entering the 2015 disallowed investment interest expense on

S corporation shareholders, Partners, LLC members. Enter the amount

line 2, use the 2015 AMT disallowed investment interest expense.

shown on the Schedule K-1 (100S, 565, or 568), Share of Income,

• When completing line 4f, refigure the gross investment income,

Deductions, Credits, etc., issued by your S corporation, partnership, or

any net gain from the disposition of property held for investment,

LLC for post-1986 depreciation.

and any investment expenses, by taking into account all of the AMT

Enter on line 4e the difference between depreciation for regular tax and

adjustments and tax preferences that apply.

depreciation for AMT. To figure the AMT adjustment on this line, subtract

The adjustment is the difference between the AMT form FTB 3526,

the depreciation figure calculated for AMT from the depreciation allowed

line 8, and the regular tax form FTB 3526, line 8. If the amount figured

for regular tax. If the depreciation calculated for AMT is greater than the

for AMT is more than that figured for regular tax, enter the adjustment

depreciation allowed for regular tax, enter the adjustment as a negative

as a negative amount.

amount. Do not include depreciation from the following:

Line 4b – Personal property taxes and real property taxes

• An activity for which the estate or trust is not at risk

Enter on this line any state and local personal property taxes and state,

• Amounts received from a S corporation, partnership, or LLC if the

local, or foreign real property taxes that are included on Form 541,

basis limitations under IRC Section 704(d) or Section 1366(d) apply

line 11.

• A passive activity

Line 4c – Miscellaneous itemized deductions from Form 541, line 15b

• A tax shelter farm activity

Miscellaneous itemized deductions subject to the 2% AGI limitation are

Instead, include these depreciation adjustments when figuring the

not deductible for AMT purposes.

adjustments on line 4l, line 4m, or line 4n, whichever applies.

Line 4d – Refund of personal property taxes and real property taxes

Line 4f – Circulation and research and experimental expenditures

Enter on this line any refunds of taxes the estate or trust received in

paid or incurred after 1986

2016 if all the following apply:

If the estate or trust elected the optional 3-year write-off period for

• Are those described in line 4b above

circulation expenditures and/or the optional 10-year write-off period for

• Are attributable to a taxable year after 1986

research and experimental expenditures under IRC Section 59(e), skip

• Were deducted in a taxable year after 1986

this line.

Line 4e – Depreciation of property placed in service after 1986

Circulation expenditures. For regular tax, IRC Section 173 allows a

If you filed federal Schedule C (Form 1040); Schedule C-EZ (Form 1040),

deduction for the full amount of circulation expenditures in the taxable

Net Profit From Business; Schedule E (Form 1040); or Schedule F

year paid or incurred. For AMT, these expenditures must be amortized

(Form 1040) and have tangible property that you began depreciating

over three years beginning with the year the expenditures were paid or

after 1986, you must use the Alternative Depreciation System (ADS) to

incurred. Enter on this line the difference between the AMT deduction

calculate AMT depreciation as follows:

and the regular tax deduction. If the AMT deduction is more than the

regular tax deduction, enter the difference as a negative amount.

Property placed in service before 1999. For property placed in service

before 1999, refigure the AMT depreciation using the ADS, with the

Research and experimental expenditures. For regular tax, IRC

same convention used for the regular tax. See the following table for the

Section 174(a) allows a deduction for research and experimental

method and recovery period to use.

expenditures in the taxable year paid or incurred. For AMT, these

expenditures must be amortized over a 10-year period. To figure the

Property placed in service before 1999

AMT adjustment, subtract the amortization figured for AMT from the

IF the property is. . .

THEN use the. . .

amortization allowed for regular tax. If the AMT amortization is greater

than regular tax amortization, enter the adjustment as a negative

IRC Section 1250(c) property

Straight-line method over

amount. Otherwise, enter the difference as a positive amount.

40 years.

See IRC Section 56(b)(2)(B) for special rules that apply to losses related

Tangible property (other than

Straight-line method over

to circulation, research, or experimental expenditures.

the IRC Section 1250(c) property)

property’s AMT class life.

Line 4g – Mining exploration and development costs paid or incurred

depreciated using straight-line

after 1986

for the regular tax

If the estate or trust elected the optional 10-year write-off under IRC

Any other tangible property

150% declining balance

Section 59(e), skip this line.

method, switching to

For regular tax, IRC Sections 616(a) and 617(a) allow a deduction for

straight-line the first

mining exploration and development costs in the taxable year paid or

tax year it gives a larger

incurred. For AMT, these costs must be capitalized and amortized over

deduction, over the

10 years beginning with the taxable year the expenditures were paid

property’s AMT class life.

Schedule P (541) Instructions 2016 Page 3

Instructions For Schedule P (Form 541) - 2016 Page 3

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