Form 3526 - California Investment Interest Expense Deduction - 2015 Page 2
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2Line 4b
Line 8 – Investment Interest Expense
• Interest expense related to tax-exempt interest
income under R&TC Section 17280.
Deduction
Enter your net gain from the disposition of
property held for investment. This is the excess of
Form 541, California Fiduciary Income Tax Return,
Property Held for Investment. Property held
total gains over total losses from the disposition
for investment includes property that produces
filers should enter the amount from line 8 on
of property held for investment. When figuring
investment income (unless derived in the ordinary
Form 541, line 10. All other filers must complete
this amount, include capital gain distributions
course of a trade or business). It also includes
line 9.
from mutual funds.
property that produces gain or loss, not derived in
At-Risk Activities. If any portion of the
the ordinary course of a trade or business, from
deductible investment interest expense on line 8
Line 4c
the disposition of property that produces these
is attributable to an activity for which you are
Enter your net capital gain from the disposition
types of income or is held for investment.
not at risk, complete federal Form 6198, At-Risk
of property held for investment. This is the
However, it does not include an interest in a
Limitations, (using California amounts) to figure
excess of your net long-term capital gain over
passive activity. See “Passive Activities.”
your deductible investment interest expense.
net short-term capital loss from the disposition
Property held for investment also includes an
of property held for investment. Capital gain
After you figure the allowable investment interest
interest in an activity of conducting a trade
distributions from mutual funds are treated as
expense on form FTB 3526, enter the portion
long-term capital gains.
attributable to the at-risk activity on federal
or business in which you did not materially
participate and that is not a passive activity.
Form 6198, line 4. Reduce form FTB 3526, line 8
Line 4e
For example, a working interest in an oil or gas
by the same amount.
Net capital gain from the disposition of property
property that is not a passive activity is property
Refer to federal Form 6198 and its instructions for
held for investment, line 4c, is excluded from
held for investment if you did not materially
more details, especially the instructions for line 4
investment income. However, you may elect to
participate in the activity.
of that form.
include in investment income all or part of the net
Passive Activities. Generally, a passive activity
capital gain from the disposition of property held
Line 10 – California Investment Interest
is any business activity in which you do not
for investment. Make the election no later than the
Expense Deduction Adjustment
materially participate and any rental activity
due date (including extensions) of your California
The amount on line 10 is the difference between
regardless of your level of participation.
income tax return. Once made, the election
the deduction allowed by California and federal law.
Investment interest expense does not include
may not be revoked without the consent of the
any interest expense that is included when
If line 8 is more than line 9, subtract line 9
Franchise Tax Board.
determining your income or loss from a passive
from line 8. Enter the result as a positive
To make the election, enter all or part of the amount
activity. However, interest expense that is properly
amount on line 10 and on Schedule CA (540 or
on line 4c, but not more than the amount on line 4b,
allocable to portfolio income is investment
540NR), line 41. Be sure to write “FTB 3526” on
that you elect to include in investment income.
interest expense and is not included when
Schedule CA (540 or 540NR), line 41.
determining your income or loss from a passive
Line 5 – Investment Expenses
If line 9 is more than line 8, subtract line 8 from
activity. Portfolio income includes income (not
line 9. Enter the result as a negative amount on
Investment expenses are your allowed
derived in the ordinary course of a trade or
line 10 and on Schedule CA (540 or 540NR),
deductions, other than interest expense, directly
business) from interest, dividends, annuities,
line 41. Write “FTB 3526” on Schedule CA (540 or
connected with the production of investment
royalties, and net gain from the disposition of
540NR), line 41.
income. For example, depreciation or depletion
property held for investment.
allowed on assets that produce investment
If any portion of your investment interest expense
For federal purposes only, rental real estate
income is an investment expense.
on line 8 is attributable to royalties, enter the
activities conducted by persons in a real
difference between the California and federal
Include investment expenses reported to you on
property business are not automatically treated
amounts on Schedule CA (540 or 540NR), line 17,
Schedules K-1 (100S, 541, 565, or 568).
as passive activities. California does not
column B or column C, as appropriate.
conform to this provision. For more information
Investment expenses do not include any
Alternative Minimum Tax (AMT). Deductible
about passive activities, get the instructions for
deductions taken into account in determining your
investment interest expense may be an AMT
federal Schedule E (Form 1040), Supplemental
income or loss from a passive activity.
adjustment. Get Schedule P (540, 540NR,
Income and Loss.
If you have investment expenses that are included
or 541), Alternative Minimum Tax and Credit
as a miscellaneous itemized deduction on federal
Line 4a – Gross Income from Property Held
Limitations, for more information.
Schedule A (Form 1040), Itemized Deductions,
for Investment
line 23, the 2% adjusted gross income limitation
Enter your gross income from property held for
on federal Schedule A (Form 1040), line 26, may
investment. This includes income (not derived in
reduce the amount you include on form FTB 3526,
the ordinary course of a trade or business) from
line 5. If you are a military servicemember
interest, dividends, annuities, and royalties. Net
domiciled outside of California, recalculate federal
income from the following passive activities is
Schedule A (Form 1040, line 26) excluding your
also treated as investment income:
active duty military pay.
• Rental of substantially nondepreciable
Include on form FTB 3526, line 5, the smaller
property.
of either the investment expenses included on
• Equity-financed lending activities.
federal Schedule A (Form 1040), line 23 or the
• Acquisition of certain interests in a pass-
total federal Schedule A (Form 1040), line 27.
through entity licensing intangible property.
If you made adjustments to your miscellaneous
Also include on line 4a (or line 4b, if applicable)
expenses on Schedule CA (540 or 540NR), be
net passive income from a passive activity of a
sure to include the adjustments in the calculation.
publicly traded partnership, as defined in IRC
Section 469(k)(2), investment income reported to
If you reported investment expenses on a form
you on Schedules K-1 (100S, 541, 565, or 568),
or schedule other than federal Schedule A
and net investment income from an estate or trust.
(Form 1040), include those expenses when
figuring investment expenses for line 5.
Page 2 FTB 3526 Instructions 2015
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