Instructions For Schedule Ca (540) - California Adjustments - Residents

Business expense deductions related to:

If the taxable amount using California law is:

• Wages paid in an EZ, LAMBRA, Manufacturing Enhancement Area (MEA),

• Less than the amount taxable under federal law, enter the difference in

or TTA.

column B.

• Certain employer costs for employees who are also enrolled members of

• More than the amount taxable under federal law, enter the difference in

Indian tribes.

column C.

• Abandonment or tax recoupment fees for open-space easements and

Get FTB Pub. 1005 for more information and worksheets for figuring the

timberland preserves.

adjustment to enter on line 15, if any.

• Business located in an EZ, LAMBRA, or TTA.

If you have an IRA basis and were a nonresident in prior years, you may need

• Research expense.

to restate your California IRA basis. Get FTB Pub. 1100 for more information.

• Employer wage expense for the Work Opportunity Credit and Welfare-to-

Coverdell Education Savings Account (ESA) formerly known as Education

Work Credit.

(ED) IRA – If column A includes a taxable distribution from an ED IRA, you

• Pro-rata share of deductions received from a CFC by a U.S. shareholder.

may owe additional tax on that amount. Get form FTB 3805P, Additional Taxes

• Interest paid on indebtedness in connection with company-owned life

on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Report

insurance policies.

only the taxable amount of the distribution on line 21f.

• Premiums paid on life insurance policies, annuities, or endowment

contracts issued after June 8, 1997, where the owner of the business is

Line 16 – Pensions and Annuities

directly or indirectly a policy beneficiary.

Generally, no adjustments are made on this line. However, if you received

• Commercial Revitalization Deductions for Renewal Communities.

Tier 2 railroad retirement benefits or partially taxable distributions from a

• Small Employer Health Insurance Credit

pension plan, you may need to make the following adjustments.

Line 13 – Capital Gain or (Loss)

If you received a federal Form RRB-1099-R, Annuities or Pensions by the

Generally, no adjustments are made on this line. California taxes long and

Railroad Retirement Board, for railroad retirement benefits and included all or

short term capital gains as regular income. No special rate for long term

part of these benefits in taxable income in column A, enter the taxable benefit

capital gains exists. However, the California basis of the assets listed below

amount in column B.

may be different from the federal basis due to differences between California

If you began receiving a retirement annuity between July 1, 1986, and

and federal laws. If there are differences, use Schedule D (540), California

January 1, 1987, and elected to use the three-year rule for California purposes

Capital Gain or Loss Adjustment, to calculate the amount to enter on line 13.

and the annuity rules for federal purposes, enter in column C the amount of

• Gain on sale of qualified small business stock under IRC Section 1045 and

the annuity payments you excluded for federal purposes.

IRC Section 1202.

You may have to pay an additional tax if you received a taxable distribution

• Basis amounts resulting from differences between California and federal

from a qualified retirement plan before reaching age 59½ and the distribution

law in prior years.

was not rolled over into another qualified plan. See Form 540, line 63

• Gain or loss on stock and bond transactions.

instructions; or form FTB 3805P.

• Installment sale gain reported on form FTB 3805E, Installment Sale

The cost of group term life insurance for retirees funded by the transfer of

Income.

excess pension assets is taxable for California purposes. Enter in column C

• Gain on the sale of personal residence where depreciation was allowable.

the amount of the cost excluded for federal purposes.

• Pass-through gain or loss from partnerships, fiduciaries, S corporations,

or LLCs.

Line 17 – Rental Real Estate, Royalties, Partnerships, S Corporations,

• Capital loss carryover from your 2012 California Schedule D (540).

Trusts, etc.

• Capital gain from children under age 19 or students under age 24 i ncluded

Adjustments to federal income or loss you reported in column A generally

on the parent’s or child’s federal tax return and reported on the California

are necessary because of the difference between California and federal law

tax return by the opposite taxpayer. For more information, get form

relating to depreciation methods, special credits, and accelerated write-offs.

FTB 3803.

As a result, the recovery period or basis used to figure California depreciation

may be different from the recovery period or amount used for federal. For

Get FTB Pub. 1001 for more information about:

more information, see the instructions for column B and column C, line 12.

• Disposition of S corporation stock acquired before 1987.

California law does not conform to federal law for material participation in

• Capital gain exclusion for sale of principal residence by a surviving spouse.

rental real estate activities. Beginning in 1994, and for federal purposes only,

• Gain on sale or disposition of qualified assisted housing development

rental real estate activities conducted by persons in real property business are

to low-income residents or to specified entities maintaining housing for

not automatically treated as passive activities. Get form FTB 3801 for more

low-income residents.

information.

• Undistributed capital gain for RIC shareholders.

• Gain or loss on the sale of property inherited before January 1, 1987.

Use form FTB 3801 to figure the total adjustment for line 17 if you have:

• Capital loss carrybacks.

• One or more passive activities that produce a loss.

• One or more passive activities that produce a loss and any nonpassive

Line 14 – Other Gains or (Losses)

activity reported on federal Schedule E (Form 1040), Supplemental Income

Generally, no adjustments are made on this line. However, the California basis

and Loss.

of your other assets may differ from your federal basis due to differences

between California and federal law. Therefore, you may have to adjust the

Use form FTB 3885A to figure the total adjustment for line 17 if you have:

amount of other gains or losses. Get Schedule D-1, Sales of Business Property.

• Only nonpassive activities which produce either gains or losses (or

Line 15 – IRA Distributions

combination of gains and losses).

Generally, no adjustments are made on this line. However, there may be

• Passive activities that produce gains.

significant differences in the taxable amount of a distribution (including a

LLCs that are classified as partnerships for California purposes and

distribution from conversion of a traditional IRA to a Roth IRA), depending

limited liability partnerships (LLPs) are subject to the same rules as other

on when you made your contributions to the IRA. Differences also occur if

partnerships. LLCs report distributive items to members on Schedule K-1

your California IRA deductions were different from your federal deductions

(568), Member’s Share of Income, Deductions, Credits, etc. LLPs report to

because of differences between California and federal self-employment

partners on Schedule K-1 (565), Partner’s Share of Income, Deductions,

income.

Credits, etc.

Get FTB Pub. 1001 for more information about accumulation distributions

to beneficiaries for which the trust was not required to pay California tax

because the beneficiary’s interest was contingent.

Schedule CA (540) Instructions 2013 Page 3

Instructions For Schedule Ca (540) - California Adjustments - Residents - 2013 Page 3

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