2013 Instructions for Form FTB 3801-CR
Passive Activity Credit Limitations
These instructions are based on the Internal Revenue Code (IRC) as of January 1, 2009, and the California Revenue and Taxation Code (R&TC).
California source, subject to any limitations
or franchise tax and taxpayers should
provided by law. For example, passive losses
group rental activities without regard to IRC
In general, for taxable years beginning on or
are limited to passive gains (IRC Section 469
section 469(c)(7). Get federal Form 8582 for
after January 1, 2010, California law conforms
and R&TC Sections 17551 and 17561). Make
general rules regarding grouping of activities.
to the Internal Revenue Code (IRC) as of
this computation even if you were always a
Disclosure Requirements for Groupings
January 1, 2009. However, there are continuing
nonresident or a former resident who moved
On January 24, 2010, the Internal Revenue
differences between California and federal
out of California.
Service issued Revenue Procedure 2010-13
law. When California conforms to federal tax
regarding disclosure requirements for
law changes, we do not always adopt all of
California taxes part-year residents as
groupings. California generally conforms to
the changes made at the federal level. For
residents for the period of the year they were
Revenue Procedure 2010-13, which is effective
more information, go to ftb.ca.gov and search
California residents and as nonresidents for
for tax years beginning on or after January 25,
for conformity. Additional information can
the period of the year they were nonresidents.
2010. A separate disclosure statement is
be found in FTB Pub. 1001, Supplemental
Therefore, a part-year resident must compute
not required for state purposes. See federal
Guidelines to California Adjustments, the
any suspended passive losses as if they were
Form 8582-CR, Passive Activity Credit
instructions for California Schedule CA (540 or
a California resident for all prior years and as
Limitations, for more information.
540NR), and the Business Entity tax booklets.
if they were a nonresident for all prior years.
The instructions provided with California tax
These amounts must then be prorated based
forms are a summary of California tax law
upon the period of California residency and the
Use form FTB 3801-CR, Passive Activity Credit
and are only intended to aid taxpayers in
period of nonresidency for the year.
Limitations, to determine whether you have a
preparing their state income tax returns. We
passive activity credit for the current taxable
include information that is most useful to the
California law does not conform to the tax
year and, if so, how much of the credit is
greatest number of taxpayers in the limited
incentives related to “renewal communities.”
allowed for the current year. The amount of the
space available. It is not possible to include
California law does provide a variety of
credit that is disallowed in the current year is
all requirements of the California Revenue
independent, state-only economic development
and Taxation Code (R&TC) in the tax booklets.
area tax incentives to encourage revitalization
Taxpayers should not consider the tax booklets
B Special Note
of special designated areas. The Government
as authoritative law.
Code provides for the designation of Enterprise
Generally, California law is the same as
Registered Domestic Partners (RDP)
Zones (EZs), Local Agency Military Base
federal law concerning passive activity credit
For purposes of California income tax,
Recovery Areas (LAMBRAs), a Targeted Tax
limitations. Get federal Form 8582-CR, Passive
references to a spouse, husband, or wife also
Area (TTA), and Manufacturing Enhancement
Activity Credit Limitations, for definitions.
refer to a California RDP, unless otherwise
Areas (MEAs). California law does not provide
Personal service corporations and closely held
specified. When we use the initials RDP they
for a lower capital gains rate in any situation.
corporations subject to the passive activity
refer to both a California registered domestic
California law generally conforms to the federal
rules must use form FTB 3802, Corporate
“partner” and a California registered domestic
rules for expensing IRC Section 179 property
Passive Activity Loss and Credit Limitations,
“partnership,” as applicable. For more
with the exception that California law allows
instead of form FTB 3801, Passive Activity
information on RDPs, get FTB Pub. 737, Tax
a maximum deduction of $25,000. In lieu of
Loss Limitations, and form FTB 3801-CR.
Information for Registered Domestic Partners.
this deduction, the California Personal Income
Tax law allows a taxpayer with a business in
an “Economic Development Area” to elect to
The passive activity loss (PAL) rules apply as
Servicemembers domiciled outside of
California, and their spouses/RDPs, may
expense $20,000 to $40,000 (depending on
if the S corporation was an individual. This
exclude the servicemember’s military
the designation) of certain specified equipment
means that losses from passive activities may
compensation from gross income when
used in the business.
not be used to offset nonpassive income,
except for $25,000 in losses from rental
computing the tax rate on nonmilitary income.
Expense treatment for small business, IRC
Requirements for military servicemembers
real estate activities. See IRC Section 469(i).
Section 179(b)(1): California law generally
domiciled in California remain unchanged.
However, the material participation rules apply
conforms to the federal rules for expensing IRC
Military servicemembers domiciled in
as if the S corporation was a closely held
Section 179 property with the exception that
corporation. The material participation rules for
California must include their military pay in
California law allows a maximum deduction of
gross income. In addition, they must include
closely held corporations are explained in the
their military pay in California source income
instructions for federal Form 8810, Corporate
The following may affect the computation of
when stationed in California. However,
Passive Activity Loss and Credit Limitations.
your passive activity credit limitations:
See IRC Section 469(h)(4) and the related
military pay is not California source income
Material Participation in Real Property
when a servicemember is permanently
regulations for more information.
Business – IRC Section 469(c)(7): Beginning
stationed outside of California. Beginning in
To compute your California passive activity
in 1994, and for federal purposes only, rental
2009, the Military Spouses Residency Relief
credit limitations for S corporations, use the
real estate activities of taxpayers engaged in
Act may affect the California income tax
worksheets in the instructions for federal
a real property business are not automatically
filing requirements for spouses of military
Form 8582-CR using California amounts.
treated as a passive activity. California did
personnel. For more information, get FTB
Enter the amount from line 21 of Form 100S,
not conform to this provision. For California
Pub. 1032, Tax Information for Military
California S Corporation Franchise or Income
purposes, all rental activities are treated as
Tax Return, on line 10 and line 22 of form
passive activities. Therefore, an election
FTB 3801-CR in place of the federal modified
under IRC section 469(c)(7) is inapplicable
In determining California taxable income,
adjusted gross income.
for purposes of California personal income
nonresidents compute prior year items by
taking into account only those items with a
FTB 3801-CR Instructions 2013 Page 1