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Unitary Partner’s Computation of Payroll Factor

Basis Rules

Use Schedule R to compute the numerator and the denominator of the

Generally, California tax law conforms to federal tax law concerning basis

payroll factor in accordance with Cal. Code Regs., tit. 18 sections 25132 and

limitations. You may not claim your share of a partnership loss (including

25133. Apply the following special rules:

a capital loss) that is greater than the adjusted basis of your partnership

interest at the end of the partnership’s taxable year.

A. Include in the denominator of your payroll factor your distributive share

of the partnership’s payroll used to produce business income. See Table

The partnership is not responsible for keeping the information needed to

2, Part C.

compute the basis of your partnership interest. Although the partnership

B. Include in the numerator any such payroll described in part A (above)

does provide you with an analysis of the changes to your capital account

that is applicable to California. See Table 2, Part C.

on your Schedule K-1 (5 65), Item J, that information is based on the

partnership’s books and records and should not be used to compute your

Distributive Items of Nonbusiness Income for a Unitary Partner

basis.

Income in Table 2, Part B, is from a California source under R&TC

Sections 25124 and 25125. Unitary partners must make certain to separately

You can compute the basis of your partnership interest by adding items that

include such items from Table 1 and 2 as California source Income. Unitary

increase your basis and then subtracting items that decrease your basis.

partners shall use Table 1 and 2 to report nonbusiness income instead of

Items that increase your basis may include the following:

Schedule K-1 (565), column (e).

• Money and the adjusted basis of property you contributed to the

partnership.

Instructions

• Your distributive share of the partnership’s income.

• Your distributive share of the increase in the liabilities of the partnership

Questions and Items

(and/or your individual liabilities caused by your assumption of

partnership liabilities).

The partnership completes the questions and items on the Schedule K-1

(5 65) for all partners. For more information, see the instructions for federal

Items that decrease your basis, but not below zero, may include the

Schedule K-1 (1065).

following:

• Money and the adjusted basis of property distributed to you.

Schedule K-1 (5 65)

• Your share of the partnership’s losses.

• Your share of the decrease in the liabilities of the partnership

Important Note to Partners: If your Schedule K-1 (5 65) reports losses and/

(and/or your individual liabilities assumed by the partnership).

or deductions, you must first apply the basis, at-risk, and the passive activity

loss limitations before such losses/deductions can be deducted on your

This is not a complete list of items and factors that determine basis. Get

California return. See Instructions, Loss Limitations, below. Also, see I R C

federal Publication 541 for a complete discussion of how to determine the

Section 705(a) for information on how to compute basis.

basis of your partnership interest.

If your return is ever examined, you may be required to provide your

At-Risk Rules

computations and the supporting documents for your partnership interest.

The at-risk rules generally limit the amount of loss, (including loss on

disposition of assets) and other deductions (such as I R C Section 179, R&TC

If you are an individual partner, the amounts in column (c), California

Sections 17267.2 and 17268 deduction) that you can claim to the amount

adjustments, and column (d), Total amounts using California law, that are

you could actually lose in the activity.

from nonpassive activities must be reported on the appropriate California

form or schedule; such as, Schedule D (5 40), California Capital Gain or Loss

If you have: (1) a loss or other deduction from an activity carried on as a

Adjustment, Schedule D-1, Sales of Business Property, Schedule CA (5 40),

trade or business or for the production of income by the partnership; and

California Adjustments — Residents, or Schedule CA (5 40N R), California

(2) amounts in the activity for which you are not at-risk, you will have to

Adjustments — Nonresidents or Part-Year Residents.

complete federal Form 6198, At-Risk Limitations, to figure the allowable

loss to report on your return. Complete federal Form 6198 using California

Amounts in column (e), California source amounts and credits, that are from

amounts.

passive activities must be reported on form FTB 3801, Passive Activity Loss

Limitations, form FTB 3801-C R, Passive Activity Credit Limitations, or form

See the instructions for federal Schedule K-1 (1065), At-Risk Limitations,

FTB 3802, Corporate Passive Activity Loss and Credit Limitations. Use the

and federal Publication 925, Passive Activity and At-Risk Rules, for more

related worksheets to figure any passive loss limitations. If the partnership

information.

knows that you are a California resident it may leave column (e) blank.

Passive Activity Loss and Credit Rules

California residents are subject to tax on their entire taxable income shown in

I R C Section 469 limits the deduction of certain losses and credits. California

column (d) (R&TC Section 17041).

law generally conforms to this federal provision. These rules apply to

If you are not an individual partner, report the amounts as instructed on your

partners who have a passive activity loss or credit for the taxable year.

California return.

For California purposes, passive loss limitations apply to individuals,

If you have losses, deductions, credits, etc., from a prior year that were not

estates, trusts (other than grantor trusts), closely held corporations, and

deductible or usable because of certain limitations, they may be taken into

S corporations.

account in determining your net income, loss, etc., for this year. However,

Even though the passive loss rules do not apply to grantor trusts,

do not combine the prior-year amounts with any amounts shown on this

partnerships, and LLCs, they do apply to the owners of these entities.

Schedule K-1 (5 65) to get a net figure. Instead, report the amounts on an

A passive activity is generally a trade or business activity in which the

attached schedule, statement, or form on a year-by-year basis. See the

partner does not materially participate or a rental real estate activity in which

instructions for federal Schedule K-1 (1065) for more information.

the partner does not actively participate. A partnership may have more than

Loss Limitations

one activity. Each partner must apply the passive activity loss and credit

limitations on an activity-by-activity basis.

The amounts shown on line 1 through line 3 of your Schedule K-1 (5 65)

Individuals, estates and trusts, and S corporations must complete form

reflect your distributive share of income or loss from the partnership’s

FTB 3801 to calculate the allowable passive losses, and form FTB 3801-CR

business or rental operations. If you have losses from the partnership, you

to calculate the allowable passive credits. Corporations must complete form

should be aware that there are three potential limitations imposed on losses

FTB 3802.

before you may deduct losses on your tax return. These limitations and the

order in which they must be applied are:

The amounts reported on Schedule K-1 (5 65), line 1 and line 15f are

normally passive activity income (loss) or credits from the trade or business

• Basis limitations (I R C Section 704)

of the partnership if you are a limited partner, or if you are a general partner

• At-risk limitations (I R C Section 465)

who did not materially participate in the trade or business activities of the

• Passive activity loss and credit limitations (I R C Section 469)

partnership. The amounts reported on Schedule K-1 (5 65), line 2, line 3,

Each of these limitations is discussed separately in the following instructions.

line 15b, line 15c, and line 15d are from rental activities of the partnership

Other limitations may apply to specific deductions such as the investment

and are passive activity income (loss) or credits to all partners. There is an

interest expense deduction. These limitations on specific deductions

exception to this rule for losses incurred by qualified investors in qualified

generally apply before the basis, at-risk, and passive loss limitations.

low-income housing projects. The partnership will identify any of these

qualified amounts on an attachment for line 2.

Schedule K-1 (5 65) Instructions 2013 Page 3

Partner'S Instructions For Schedule K-1 (Form 565) - Partner'S Share Of Income, Deductions, Credits, Etc. - 2013 Page 3

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