Fillable Schedule D (540) - Capital Gain Or Loss Adjustment

2014 Instructions for California Schedule D (540)

California Capital Gain or Loss Adjustment

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).

What’s New

At-Risk Rules and Passive Activity Limitations. If you dispose of (1) an

asset used in an activity to which the at-risk rules apply, or (2) any part

Like-Kind Exchanges – For taxable years beginning on or after January 1,

of your interest in an activity to which the at-risk rules apply, and the

2014, California requires taxpayers who exchange property located in

amounts in the activity for which you are not at risk, get and complete

California for like-kind property located outside of California, and meet all

federal Form 6198, At-Risk Limitations, using California amounts to

of the requirements of the Internal Revenue Code (IRC) Section 1031, to

figure your California deductible loss under the at-risk rules. Once a

file an annual information return with the Franchise Tax Board (FTB). For

loss becomes allowable under the at-risk rules, it becomes subject to

more information, get form FTB 3840, California Like-Kind Exchanges, or

the passive activity rules. Get form FTB 3801, Passive Activity Loss

go to ftb.ca.gov and search for like kind.

Limitations.

General Information

Specific Line Instructions

In general, for taxable years beginning on or after January 1, 2010,

Line 1 – List each capital asset transaction.

California law conforms to the IRC as of January 1, 2009. However,

Column (a) – Description of Property. Describe the asset you sold or

there are continuing differences between California and federal law.

exchanged.

When California conforms to federal tax law changes, we do not always

Column (b) – Sales Price. Enter in this column either the gross sales

adopt all of the changes made at the federal level. For more information,

price or the net sales price. If you received a Form 1099-B, Proceeds

go to ftb.ca.gov and search for conformity. Additional information

From Broker and Barter Exchange Transactions; Form 1099-S, Proceeds

can be found in FTB Pub. 1001, Supplemental Guidelines to California

From Real Estate Transactions; or similar statement showing the gross

Adjustments, the instructions for California Schedule CA (540 or 540NR),

sales price, enter that amount in column (b). However, if box 2a of

and the Business Entity tax booklets.

Form 1099-B indicates that gross proceeds less commissions and

The instructions provided with California tax forms are a summary of

option premiums were reported to the IRS, enter that net amount in

California tax law and are only intended to aid taxpayers in preparing

column (b). If you entered the net amount in column (b), do not include

their state income tax returns. We include information that is most useful

the commissions and option premiums in column (c).

to the greatest number of taxpayers in the limited space available. It is

Column (c) – Cost or Other Basis. In general, the cost or other basis

not possible to include all requirements of the California Revenue and

represents the cost of the property plus purchase commissions and

Taxation Code (R&TC) in the tax booklets. Taxpayers should not consider

improvements, minus depreciation, amortization, and depletion. Enter

the tax booklets as authoritative law.

the cost or adjusted basis of the asset for California purposes. Use your

For purposes of California income tax, references to a spouse, husband,

records and California tax returns for years before 1987 to determine the

or wife also refer to a California registered domestic partner (RDP),

California amount to enter in column (c). If you used an amount other

unless otherwise specified. When we use the initials RDP they refer to

than cost as the original basis, your federal basis may be different from

both a California registered domestic “partner” and a California registered

your California basis. Other reasons for differences include:

domestic “partnership,” as applicable. For more information on RDPs,

• Depreciation Methods and Property Expensing – Before 1987,

get FTB Pub. 737, Tax Information for Registered Domestic Partners.

California law disallowed the use of accelerated cost recovery system

and disallowed the use of an asset depreciation range 20% above

Purpose

or below the standard rate. Before 1999, California had different

limits on the expensing of property under IRC Section 179. California

Use California Schedule D (540), California Capital Gain or Loss

law permits rapid write-off of certain property such as solar energy

Adjustment, only if there is a difference between your California and

systems, pollution control devices, and property used in an Enterprise

federal capital gains and losses.

Zone, Local Agency Military Base Recovery Area, Targeted Tax Area, or

Get FTB Pub. 1001, for more information about the following:

Los Angeles Revitalization Zone.

• Disposition of property inherited before 1987.

• Inherited Property – The California basis of property inherited from a

• Gain on the sale or disposition of a qualified assisted housin g

decedent is generally the fair market value at the time of death.

development to low-income residents or to specific entities

• S Corporation Stock – Prior to 1987, California law did not recognize

maintaining housing for low-income residents.

S corporations; therefore, your California basis in S corporation stock

• Capital loss carryback.

may differ from your federal basis. In general, your California basis

Installment Sales. If you sold property at a gain (other than publicly

will be cost- adjusted for income, loss, and distributions received

traded stocks or securities) and you will receive a payment in a tax year

after 1986, while your stock was California S corporation stock. Your

after the year of sale, report the sale on the installment method unless

federal basis will be cost-adjusted for income, loss, and distributions

you elect not to do so. Get form FTB 3805E, Installment Sale Income.

received during the time your stock qualified for federal S corporation

Also, use that form if you received a payment in 2014, for an installment

treatment. Effective for taxable years beginning on or after January 1,

sale made in an earlier year.

2002, any corporation with a valid federal S corporation election is

You may elect not to use the installment sale method for California by

considered an S corporation for California purposes. Existing law

reporting the entire gain on Schedule D (540) (or Schedule D-1, Sales of

already requires federal C corporations to be treated as C corporations

Business Property, for business assets) in the year of the sale and filing

for California purposes.

your return on or before the due date.

Schedule D (540) Instructions 2014 Page 1

Schedule D (540) - Capital Gain Or Loss Adjustment - 2014 Page 3

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