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Enter in column C, the interest you identified as tax-exempt interest on

Use form FTB 3801, Passive Activity Loss Limitations, to figure the total

your federal Form 1040 (or Form 1040A), line 8b or Form 1040NR, line 9b;

adjustment for line 12 if you have:

and which you received from:

• One or more passive activities that produce a loss.

• The federally exempt interest dividends from other states, or their

• One or more passive activities that produce a loss and any nonpassive

municipal obligations and/or from mutual funds that do not meet the 50%

activity reported on federal Schedule C.

rule above.

Use form FTB 3885A to figure the total adjustment for line 12 if you have:

• Non-California state bonds.

• Only nonpassive activities which produce either gains or losses (or a

• Non-California municipal bonds issued by a county, city, town, or other

combination of gains and losses).

local government unit.

• Passive activities that produce gains.

• Obligations of the District of Columbia issued after December 27, 1973.

Get FTB Pub. 1001, Supplemental Guidelines to California Adjustments, for

• Non-California bonds if the interest was passed through to you from S

more information about:

corporations, trusts, partnerships, or Limited Liability Companies (LLCs).

• Interest or other earnings from a Health Savings Account (HSA) are not

Income related to:

treated as tax deferred. Interest or earnings in an HSA are taxable in the

• Business, trade, or profession carried on within California that is an

year earned.

integral part of a unitary business carried on both within and outside

• Interest on any bond or other obligation issued by the Government of

California.

American Samoa.

• Pro-rata share of income received from a controlled foreign corporation

• Interest income from children under the age of 14, included on the

by a U.S. shareholder.

parent’s or child’s federal return and reported on the California return by

the opposite taxpayer.

Basis adjustments related to:

Make no entries in either column B or column C for interest earned on Federal

• Property acquired prior to becoming a California resident;

National Mortgage Association (Fannie Mae) Bonds, Government National

• Sales or use tax credit for property used in an EZ, Local Agency Military

Mortgage Association (Ginnie Mae) Bonds, and Federal Home Loan Mortgage

Base Recovery Area (LAMBRA), Targeted Tax Area (TTA), or former LARZ.

Corporations (FHLMC) securities, or grants paid to low-income individuals.

• Reduced recovery periods for fruit-bearing grapevines replaced in a

California vineyard on or after 1/1/92 as a result of phylloxera infestation;

Get FTB Pub. 1001, Supplemental Guidelines to California Adjustments, if you

or on or after 1/1/97 as a result of Pierce’s disease.

received interest income from the following sources:

• Expenditures for tertiary injectants.

• Loans made in an enterprise zone (EZ), or the former Los Angeles

• Property placed in service on an Indian reservation after 1/1/94 and before

Revitalization Zone (LARZ).

12/31/03.

• Items listed above passed through to you from S corporations, trusts,

• Amortization of pollution control facilities.

partnerships, or LLCs.

• Discharge of real property business indebtedness.

Line 9 – Ordinary dividends

• Employer-paid child care program.

• Employer-paid child care plan.

Generally, no difference exists between the amount of dividends reported in

• Vehicles used in an employer-sponsored ridesharing program.

Column A and the amount reported using California law. However, California

• An enhanced oil recovery system.

taxes dividends derived from other states and their municipal obligations.

• Joint Strike Fighter property costs.

Get FTB Pub. 1001, Supplemental Guidelines to California Adjustments, if you

• The cost of making a business accessible to disabled individuals.

received dividend income from:

• Property for which you received an energy conservation subsidy from a

• Noncash patronage dividends from farmers’ cooperatives or mutual

public utility on or after 1/1/95, and before 1/1/97.

associations.

• Research and experimental expenditures.

• A controlled foreign corporation.

Business expense deductions related to:

• Distribution of pre-1987 earnings from S corporations.

• Wages paid in an EZ, LAMBRA, Manufacturing Enhancement Area (MEA),

• Undistributed capital gains for regulated investment company (RIC)

or TTA.

shareholders.

• Certain employer costs for employees who are also enrolled members of

• Dividend income from children between the ages of 14 and 18.

Indian tribes.

• Dividend income from children under the age of 14, included on the

• Abandonment or tax recoupment fees for open-space easements and

parent’s or child’s federal return and reported on the California return by

timberland preserves.

the opposite taxpayer.

• Business located in an EZ, LAMBRA, or TTA.

Line 0 – Taxable refunds, credits, or offsets of state and local income

• Research expense.

taxes

• Employer wage expense for the Work Opportunity Credit and Welfare-to-

California does not tax the state income tax refund received in 2007. Enter in

Work Credit.

column B, the amount of state tax refund entered in column A.

• Pro-rata share of deductions received from a controlled foreign

corporation by a U.S. shareholder.

Line – Alimony Received

• Interest paid on indebtedness in connection with company-owned life

If you are a nonresident alien and received alimony not included in your

insurance policies.

federal income, enter the alimony on this line in column C. Otherwise, make

• Premiums paid on life insurance policies, annuities or endowment

no entry on this line.

contracts issued after 6/8/97, where the owner of the business is directly

Line 2 – Business Income or (Loss)

or indirectly a policy beneficiary.

Adjustments to federal business income or loss you reported in column A

• Commercial Revitalization Deductions for Renewal Communities.

generally are necessary because of the difference between California

Line 3 – Capital Gain or (Loss)

and federal law relating to depreciation methods, special credits, and

Generally, no adjustments are made on this line. California taxes long

accelerated write-offs. As a result, the recovery period or basis used to figure

and short term capital gains as regular income. No special rate for long

California depreciation may be different from the amount used for federal

term capital gains exists. However, the California basis of the assets

purposes. Adjustments are figured on form FTB 3885A, Depreciation and

listed below may be different from the federal basis due to differences

Amortization Adjustments, and are most commonly necessary because of the

between California and federal laws. If there are differences, use

following:

Schedule D (540NR), California Capital Gain or Loss Adjustment, to

• Before January , 987, California did not allow depreciation under the

calculate the amount to enter on line 13:

federal accelerated cost recovery system. Continue to figure California

• Gain on the sale of qualified small business stock which qualifies for the

depreciation for those assets in the same manner as prior years.

gain exclusion under IRC Section 1202.

• On or after January , 987, California provides special credits and

• Basis amounts resulting from differences between California and federal

accelerated write-offs that affect the California basis of qualifying assets.

law in prior years.

Refer to the bulleted list below.

Schedule CA (540NR) Instructions 2007 (REV 03-08) Page 3

Instructions For Schedule Ca (540nr) - California Adjustments - Nonresidents Or Part-Year Residents - 2007 Page 3

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