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Step 3 – Figure the difference between the AMT gain or loss and the

Line 13b – Depletion

regular tax gain or loss and enter the result on line 9. Enter the difference

For AMT, if the depletion deduction for mines, wells, and other natural

as a negative amount if: the AMT gain is less than the regular tax gain;

deposits determined under IRC Section 611 exceeds the adjusted basis

the AMT loss is more than the regular tax loss; or you have an AMT loss

of the property at the end of your taxable year, you have a depletion

and a regular tax gain.

preference adjustment.

Line 10 – Incentive stock options and California qualified stock options

California conformed in 1993 to the federal repeal of the AMT depletion

adjustment for independent oil and gas producers and royalty owners.

Incentive stock options (ISOs). For regular tax, no income is recognized

See federal Form 6251 and instructions. However, your California

when an ISO, as defined in IRC Section 422(b), is granted or exercised.

depletion costs may continue to be different from the federal amounts

However, this rule does not apply for AMT. Instead, you must generally

because of prior differences in law and different bases.

include on line 10 the excess of:

To figure your adjusted basis, use the rules in IRC Section 1016, but do

• The fair market value (FMV) of the stock acquired through the exercise

not reduce the adjusted basis by current-year depletion. Figure the excess

of the option (determined without regard to any lapse restriction) when

amount separately for each property. Enter on this line only the depletion

your rights in the stock first become transferable, or when these rights

amount that exceeds your adjusted basis.

are no longer subject to a substantial risk of forfeiture, over

• The amount you paid for the stock.

Line 13c – Installment sales

If, for regular tax purposes, you used the installment method to report a

Increase your AMT basis of any stock acquired through the exercise of

non-dealer disposition of property that occurred after August 16, 1986,

an ISO by the amount of the AMT adjustment. If you acquired stock by

but before January 1, 1990, and if the obligation that arose from the

exercising an ISO and you disposed of that stock in the same year, the

disposition was an installment obligation to which the proportionate

tax treatment under regular tax and AMT is the same (no adjustment is

disallowance rule applied, refigure your income for AMT purposes

required).

without regard to the installment method.

California qualified stock options (CQSOs). Under R&TC Section 17502,

Enter the difference between your AMT and regular tax income on this

taxpayers whose earned income from the corporation granting the CQSO

line. If the AMT income is smaller, enter the difference as a negative

was $40,000 or less may exclude compensation arising from the exercise

amount.

of a CQSO from regular tax income. The amount of compensation

excluded for regular tax must be included for AMT on this line.

Line 13d – Intangible drilling costs (IDCs)

If you elected the optional 60-month write-off under IRC Section 59(e)

Line 11 – Passive activities adjustment

for regular tax for all property in this category, skip this line.

You may want to complete a second form FTB 3801, Passive Activity

Loss Limitations, and the other forms or schedules on which your

IDCs from oil, gas, and geothermal wells are preferences to the extent

passive activities are reported to figure this adjustment. You may enter

that the excess IDCs exceed 65% of the net income from the wells.

the following types of adjustments on this line:

Figure the preference for oil and gas properties separate from geothermal

properties. To figure excess IDCs:

Regular passive activities. Refigure your passive activity gains

and losses for AMT by taking into account all AMT adjustments and

A. Figure the amount of your IDCs allowed for regular tax under IRC

preferences and AMT prior year unallowed losses that apply to the

Section 263(c). Do not include any deduction for nonproductive wells.

passive activity. The adjustment is the difference between your AMT

Then refigure your IDCs allowed for AMT by amortizing them over

passive activity income or loss (from activities reported on federal

120 months, starting with the month you placed the well in production.

Schedules C, C-EZ, Net Profit from Business, E, F, or federal Form 4835,

Then subtract your AMT IDCs from your regular tax IDCs to get your

Farm Rental Income and Expenses) and income or loss from these

excess IDCs. You may elect to use any other method that is allowed in

activities for regular tax.

determining cost depletion.

B. Figure net income by reducing the gross income from all oil, gas, and

Publicly traded partnership (PTP). If you had losses from a PTP, you will

geothermal wells that you received or accrued during the taxable year

have to refigure the losses using any AMT adjustments, preferences, and

by any deductions allocable to these properties (reduced by the excess

any AMT prior year unallowed losses.

IDCs). Use only income and deductions allowed for AMT.

Tax shelter passive farm activities. Refigure any gain or loss from a

C. Multiply the net income by 65% (.65). Subtract the result from the

tax shelter passive farm activity. Take into account all AMT adjustments,

excess IDCs figured in A. This is your excess IDCs that you enter on

preferences, and AMT prior year unallowed losses. If the amount is a

this line.

gain, include it on your AMT form FTB 3801. Do not include a tax shelter

Exception. The preference for IDCs from oil and gas wells does not

passive farm activity loss on your AMT form FTB 3801. Instead, carry the

apply to taxpayers who are independent producers, i.e., not integrated

loss forward to offset against future tax shelter passive farm activities.

oil companies as defined in IRC Section 291(b)(4). However, this benefit

Insolvency. If, at the end of the taxable year, your liabilities exceed the

may be limited. First, figure the IDC preference as if this exception did not

FMV of your assets, increase your passive activity loss allowed by that

apply. Then, for purposes of this exception, complete Schedule P (540)

excess but not by more than your total loss. See IRC Section 58(c)(1).

through line 19, including the IDC preference. If the amount of the IDC

Line 13 – Other adjustments and preferences

preference exceeds 40% of the amount figured for line 19, enter the

Enter the amount of any other adjustments or preferences that apply to

excess on line 13d (the benefit of this exception is limited). If the amount

you on line 13a through line 13l. Enter the total on line 13.

of the IDC preference is equal to or less than 40% of the amount figured

for line 19, do not enter an amount on line 13d (the benefit of this

Line 13a – Circulation expenditures

exception is not limited).

If you elected the optional 3-year write-off period for circulation

expenditures under IRC Section 59(e), skip this line.

Line 13e – Long-term contracts

For regular tax, you may have figured taxable income from a long-term

For regular tax, IRC Section 173 allows you to deduct the full amount of

contract (entered into after February 28, 1986) using the completed-

circulation expenditures in the taxable year you paid or incurred them. For

contract method or another method.

AMT, you must amortize these expenditures over three years beginning

with the year you paid or incurred the expenditures. Enter the difference

between your AMT deduction and your regular tax deduction. If your AMT

deduction is more than your regular tax deduction, enter your adjustment

as a negative amount.

See IRC section 56(b)(2) for a special rule that applies to losses related

to circulation expenditures.

Page 4 Schedule P (540) Instructions 2013

Instructions For Schedule P (540) - Alternative Minimum Tax And Credit Limitations - Residents - 2013 Page 4

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