Instructions For Form Ftb 3801 - Passive Activity Loss Limitations

2013 Instructions for Form FTB 3801

Passive Activity Loss 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).

General Information

are limited to passive gains (IRC Section 469

Revenue Procedure 2010-13, which is effective

and R&TC Sections 17551 and 17561). Make

for tax years beginning on or after January 25,

In general, for taxable years beginning on or

this computation whether you were always a

2010. A separate disclosure statement is

after January 1, 2010, California law conforms

nonresident or a former resident who moved

not required for state purposes. See federal

to the Internal Revenue Code (IRC) as of

out of California.

Form 8582, Passive Activity Loss Limitations,

January 1, 2009. However, there are continuing

for more information.

Part-Year Resident

differences between California and federal law.

California taxes part-year residents as

A Purpose

When California conforms to federal tax law

residents for the period of the year they were

changes, we do not always adopt all of the

Individuals, estates, trusts, and S corporations

California residents and as nonresidents for

changes made at the federal level. For more

use form FTB 3801, Passive Activity Loss

the period of the year they were nonresidents.

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

Limitations, to figure both of the following:

Therefore, a part-year resident must compute

conformity. Additional information can be found

any suspended passive losses as if they were

• Allowable California passive activity loss

in FTB Pub. 1001, Supplemental Guidelines

a California resident for all prior years and as

to California Adjustments, the instructions for

(PAL).

if they were a nonresident for all prior years.

California Schedule CA (540 or 540NR), and the

• Adjustment you must make to account for

These amounts must then be prorated based

any difference between your California PAL

Business Entity tax booklets.

upon the period of California residency and the

and your federal PAL.

The instructions provided with California tax

period of nonresidency for the year.

forms are a summary of California tax law

Generally, California law is the same as federal

For more information get FTB Pub. 1100,

and are only intended to aid taxpayers in

law concerning PAL limitations. However,

Taxation of Nonresidents and Individuals Who

differences, such as the special treatment

preparing their state income tax returns. We

Change Residency.

include information that is most useful to the

for real estate professionals (as described in

greatest number of taxpayers in the limited

General Information) may cause your California

Renewal Communities

space available. It is not possible to include

PAL to be different from your federal PAL.

California law does not conform to the tax

all requirements of the California Revenue

incentives related to “renewal communities.”

B Who Must File

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

California law does, however, provide a

Taxpayers should not consider the tax booklets

variety of independent, state-only economic

Form FTB 3801 is filed by individuals, estates,

as authoritative law.

development area tax incentives to encourage

trusts, and S corporations that have losses

revitalization of specially designated areas. The

Registered Domestic Partners (RDP)

(including prior year unallowed losses) from

Government Code provides for the designation

For purposes of California income tax,

passive activities. Additional information

of Enterprise Zones (EZs), Local Agency

references to a spouse, husband, or wife also

for nonresidents, part-year residents, and

Military Base Recovery Areas (LAMBRAs), a

S corporations is provided below.

refer to a California RDP, unless otherwise

Targeted Tax Area (TTA), and Manufacturing

specified. When we use the initials RDP they

Exception. You do not have to file form

Enhancement Areas (MEAs). California law

refer to both a California registered domestic

FTB 3801 if you meet both of the following

does not provide for a lower capital gain tax

“partner” and a California registered domestic

conditions:

rate in any situation. California law generally

“partnership,” as applicable. For more

• You have a net loss from rental real estate

conforms to the federal rules for expensing IRC

information on RDPs, get FTB Pub. 737, Tax

activities that is fully deductible under the

Section 179 property with the exception that

Information for Registered Domestic Partners.

special allowance for rental real estate.

California law allows a maximum deduction of

Military Personnel

• You have no other passive activities.

$25,000. In lieu of this deduction, the California

Servicemembers domiciled outside of

Personal Income Tax law allows a taxpayer

Full-Year Nonresidents

California, and their spouses/RDPs, may

with a business in an “Economic Development

A full-year nonresident is taxable only on

exclude the servicemember’s military

Area” to elect to expense $20,000 to $40,000

income derived from California sources.

compensation from gross income when

(depending on the designation) of certain

computing the tax rate on nonmilitary income.

Part-Year Residents

specified equipment used in the business.

Requirements for military servicemembers

Part-year residents are taxable on all income

Material Participation in Real Property

domiciled in California remain unchanged.

from all sources while a California resident and

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

Military servicemembers domiciled in

only on income derived from California sources

in 1994, and for federal purposes only, rental

California must include their military pay in

while a nonresident.

real estate activities of taxpayers engaged in

total income. In addition, they must include

Full-year nonresidents and part-year residents

real property business are not automatically

their military pay in California source income

see Nonresident and Part-Year Resident

treated as passive activities. California did

when stationed in California. However, military

Instructions on page 4.

not conform to this provision. For California

pay is not California source income when

S Corporations

purposes, all rental activities are passive

a servicemember is permanently stationed

The PAL rules apply as if the S corporation

activities. Therefore, an election under IRC

outside of California. Beginning in 2009,

were an individual. For example, losses from

section 469(c)(7) is inapplicable for purposes

the Military Spouses Residency Relief Act

passive activities may not be used to offset

of California personal income or franchise tax

may affect the California income tax filing

other income, except for the $25,000 special

and taxpayers should group rental activities

requirements for spouses of military personnel.

allowance for losses from active participation

without regard to IRC section 469(c)(7). Get

For more information, get FTB Pub. 1032, Tax

in rental real estate activities. Refer to

federal Form 8582 for general rules regarding

Information for Military Personnel.

IRC Section 469. However, the material

grouping of activities.

Nonresident

participation rules apply as if the S corporation

Disclosure Requirements for Groupings

In determining California taxable income,

were a closely-held C corporation. The

On January 24, 2010, the Internal Revenue

nonresidents compute prior year items by

material participation rules for closely-held

Service issued Revenue Procedure 2010-13

taking into account only those items with a

C corporations are explained in the instructions

regarding disclosure requirements for

California source, subject to any limitations

for federal Form 8810, Corporate Passive

groupings. California generally conforms to

provided by law. For example, passive losses

FTB 3801 Instructions 2013 Page 1

Instructions For Form Ftb 3801 - Passive Activity Loss Limitations - 2013

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