Schedule D (540) - California Capital Gain Or Loss Adjustment - 2012 Page 2
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3Instructions 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 of
Qualified Small Business Stock – In Cutler. v. Franchise Tax Board
your interest in an activity to which the at-risk rules apply, and the amounts
(2012) 208 Cal App 4th 1247, 146 Cal Rptr. 3d 244, the California Court
in the activity for which you are not at risk, get and complete federal
of Appeal found that the California qualified small business stock (QSBS)
Form 6198, At-Risk Limitations, using California amounts to figure your
provisions of R&TC Sections 18038.5 and 18152.5 discriminated against
California deductible loss under the at-risk rules. Once a loss becomes
interstate commerce in violation of the Commerce Clause of the United
allowable under the at-risk rules, it becomes subject to the passive activity
States Constitution. R&TC Sections 18038.5 and 18152.5 provided
rules. Get form FTB 3801, Passive Activity Loss Limitations.
for a California deferral and exclusion of gain from the sale of QSBS if
80% of the corporation’s property and payroll was located in California
Specific Line Instructions
for substantially all of the taxpayer’s holding period of the stock. An
unconstitutional statute is invalid and unenforceable. Therefore, the
Line 1 – List each capital asset transaction.
California deferral and exclusion are not available.
Column (a) – Description of Property. Describe the asset you sold or
exchanged.
General Information
Column (b) – Sales Price. Enter in this column either the gross sales
price or the net sales price. If you received a Form 1099-B, Proceeds
In general, for taxable years beginning on or after January 1, 2010,
From Broker and Barter Exchange Transactions; Form 1099-S, Proceeds
California law conforms to the Internal Revenue Code (IRC) as of
From Real Estate Transactions; or similar statement showing the gross
January 1, 2009. However, there are continuing differences between
sales price, enter that amount in column (b). However, if box 2a of
California and federal law. When California conforms to federal tax law
Form 1099-B indicates that gross proceeds less commissions and
changes, we do not always adopt all of the changes made at the federal
option premiums were reported to the IRS, enter that net amount in
level. For more information, go to ftb.ca.gov and search for conformity.
column (b). If you entered the net amount in column (b), do not include
Additional information can be found in FTB Pub. 1001, Supplemental
the commissions and option premiums in column (c).
Guidelines to California Adjustments, the instructions for California
Schedule CA (540 or 540NR), and the Business Entity tax booklets.
Column (c) – Cost or Other Basis. In general, the cost or other basis
represents the cost of the property plus purchase commissions and
The instructions provided with California tax forms are a summary of
improvements, minus depreciation, amortization, and depletion. Enter
California tax law and are only intended to aid taxpayers in preparing
the cost or adjusted basis of the asset for California purposes. Use your
their state income tax returns. We include information that is most useful
records and California tax returns for years before 1987 to determine the
to the greatest number of taxpayers in the limited space available. It is
California amount to enter in column (c). If you used an amount other
not possible to include all requirements of the California Revenue and
than cost as the original basis, your federal basis may be different from
Taxation Code (R&TC) in the tax booklets. Taxpayers should not consider
your California basis. Other reasons for differences include:
the tax booklets as authoritative law.
• Depreciation Methods and Property Expensing – Before 1987,
For purposes of California income tax, references to a spouse, husband,
California law disallowed the use of accelerated cost recovery system
or wife also refer to a California registered domestic partner (RDP),
and disallowed the use of an asset depreciation range 20% above or
unless otherwise specified. When we use the initials RDP they refer to
below the standard rate. Before 1999, California had different limits
both a California registered domestic “partner” and a California registered
on the expensing of property under IRC Section 179. California law
domestic “partnership,” as applicable. For more information on RDPs,
permits rapid write-off of certain property such as solar energy systems,
get FTB Pub. 737, Tax Information for Registered Domestic Partners.
pollution control devices, and property used in an Enterprise Zone, Local
Agency Military Base Recovery Area, Targeted Tax Area, or Los Angeles
Purpose
Revitalization Zone.
• Inherited Property – The California basis of property inherited from a
Use California Schedule D (540), California Capital Gain or Loss
Adjustment, only if there is a difference between your California and
decedent is generally the fair market value at the time of death.
federal capital gains and losses.
• S Corporation Stock – Prior to 1987, California law did not recognize
S corporations; therefore, your California basis in S corporation stock
Get FTB Pub. 1001, for more information about the following:
may differ from your federal basis. In general, your California basis
• Disposition of property inherited before 1987.
will be cost- adjusted for income, loss, and distributions received after
• Gain on the sale or disposition of a qualified assisted housin g
1986, while your stock was California S corporation stock. Your federal
development to low-income residents or to specific entities
basis will be cost-adjusted for income, loss, and distributions received
maintaining housing for low-income residents.
during the time your stock qualified for federal S corporation treatment.
• Capital loss carryback.
Effective for taxable years beginning on or after January 1, 2002, any
Installment Sales. If you sold property at a gain (other than publicly
corporation with a valid federal S corporation election is considered
traded stocks or securities) and you will receive a payment in a tax year
an S corporation for California purposes. Existing law already requires
after the year of sale, report the sale on the installment method unless
federal C corporations to be treated as C corporations for California
you elect not to do so. Get form FTB 3805E, Installment Sale Income.
purposes.
Also, use that form if you received a payment in 2012, for an installment
• Special Credits – California law authorizes special tax credits not
sale made in an earlier year.
allowed under federal law or computed differently under federal law. In
You may elect not to use the installment sale method for California by
many instances if you claimed special credits related to capital assets,
reporting the entire gain on Schedule D (540) (or Schedule D-1, Sales of
you must reduce your basis in the assets by the amount of credit.
Business Property, for business assets) in the year of the sale and filing
your return on or before the due date.
Schedule D (540) Instructions 2012 Page 1
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