Instructions For Form Ftb 3801-Cr - Passive Activity Credit Limitations

2014 Instructions for Form FTB 3801-CR

Passive Activity Credit Limitations

These instructions are based on the Internal Revenue Code (IRC) as of January 1, 2009, and the California Revenue and Taxation Code (R&TC).

General Information

B Special Note

provided by law. For example, passive losses

are limited to passive gains (IRC Section 469

In general, for taxable years beginning on or

Generally, California law is the same as

and R&TC Sections 17551 and 17561). Make

after January 1, 2010, California law conforms

federal law concerning passive activity credit

this computation even if you were always a

to the Internal Revenue Code (IRC) as of

limitations. Get federal Form 8582-CR for

nonresident or a former resident who moved

January 1, 2009. However, there are continuing

definitions.

out of California.

differences between California and federal

Personal service corporations and closely held

Part-Year Resident

law. When California conforms to federal tax

corporations subject to the passive activity

California taxes part-year residents as

law changes, we do not always adopt all of

rules must use form FTB 3802, Corporate

residents for the period of the year they were

the changes made at the federal level. For

Passive Activity Loss and Credit Limitations,

California residents and as nonresidents for

more information, go to ftb.ca.gov and search

instead of form FTB 3801, Passive Activity

the period of the year they were nonresidents.

for conformity. Additional information can

Loss Limitations, and form FTB 3801-CR.

Therefore, a part-year resident must compute

be found in FTB Pub. 1001, Supplemental

any suspended passive losses as if they were

S Corporations

Guidelines to California Adjustments, the

a California resident for all prior years and as

The passive activity loss (PAL) rules apply as

instructions for California Schedule CA (540 or

if they were a nonresident for all prior years.

if the S corporation was an individual. This

540NR), and the Business Entity tax booklets.

These amounts must then be prorated based

means that losses from passive activities

The instructions provided with California tax

upon the period of California residency and the

may not be used to offset nonpassive income,

forms are a summary of California tax law

period of nonresidency for the year.

except for $25,000 in losses from rental

and are only intended to aid taxpayers in

real estate activities. See IRC Section 469(i).

Renewal Communities

preparing their state income tax returns. We

However, the material participation rules apply

California law does not conform to the tax

include information that is most useful to the

as if the S corporation was a closely held

incentives related to “renewal communities.”

greatest number of taxpayers in the limited

corporation. The material participation rules for

Expense treatment for small business, IRC

space available. It is not possible to include

closely held corporations are explained in the

all requirements of the California Revenue

Section 179(b)(1): California law generally

instructions for federal Form 8810, Corporate

and Taxation Code (R&TC) in the tax booklets.

conforms to the federal rules for expensing

Passive Activity Loss and Credit Limitations.

Taxpayers should not consider the tax booklets

IRC Section 179.

See IRC Section 469(h)(4) and the related

as authoritative law.

The following may affect the computation of

regulations for more information.

your passive activity credit limitations:

Registered Domestic Partners (RDP)

To compute your California passive activity

For purposes of California income tax,

Material Participation in Real Property

credit limitations for S corporations, use the

references to a spouse, husband, or wife also

Business – IRC Section 469(c)(7): Beginning

worksheets in the instructions for federal

refer to a California RDP, unless otherwise

in 1994, and for federal purposes only, rental

Form 8582-CR using California amounts.

specified. When we use the initials RDP they

real estate activities of taxpayers engaged in

Enter the amount from line 20 of Form 100S,

refer to both a California registered domestic

a real property business are not automatically

California S Corporation Franchise or Income

“partner” and a California registered domestic

treated as a passive activity. California did

Tax Return, on line 10 and line 22 of form

“partnership,” as applicable. For more

not conform to this provision. For California

FTB 3801-CR in place of the federal modified

information on RDPs, get FTB Pub. 737, Tax

purposes, all rental activities are treated

adjusted gross income.

Information for Registered Domestic Partners.

as passive activities. Therefore, an election

C Who Must File

under IRC section 469(c)(7) is inapplicable

Military Personnel

for purposes of California personal income

Servicemembers domiciled outside of

Form FTB 3801-CR is filed by individuals,

or franchise tax and taxpayers should

California, and their spouses/RDPs, may

estates, trusts, and S corporations with any of

group rental activities without regard to IRC

exclude the servicemember’s military

the following credits from passive activities:

section 469(c)(7). Get federal Form 8582,

compensation from gross income when

Credit

Code

Passive Activity Loss Limitations, for general

computing the tax rate on nonmilitary income.

Orphan drug credit carryover

185

rules regarding grouping of activities.

Requirements for military servicemembers

Low-income housing

172

domiciled in California remain unchanged.

Disclosure Requirements for Groupings

Research

183

Military servicemembers domiciled in

On January 24, 2010, the Internal Revenue

Enter the code number for your credit on your

California must include their military pay in

Service issued Revenue Procedure 2010-13

tax return when you are able to claim the credit.

gross income. In addition, they must include

regarding disclosure requirements for

their military pay in California source income

groupings. California generally conforms to

D Passive Activities

when stationed in California. However, military

Revenue Procedure 2010-13, which is effective

pay is not California source income when

for tax years beginning on or after January 25,

See the instructions for federal Form 8582-CR

a servicemember is permanently stationed

2010. A separate disclosure statement is

for information about passive activities and

outside of California. Beginning in 2009,

not required for state purposes. Get federal

passive activity credits.

the Military Spouses Residency Relief Act

Form 8582-CR, Passive Activity Credit

Dispositions

may affect the California income tax filing

Limitations, for more information.

Unallowed passive activity credits, unlike

requirements for spouses of military personnel.

unallowed passive activity losses, are not

A Purpose

For more information, get FTB Pub. 1032, Tax

allowable when you dispose of your interest in

Information for Military Personnel.

Use form FTB 3801-CR, Passive Activity Credit

an activity in a taxable transaction. However,

Nonresident

Limitations, to determine whether you have a

you may elect to increase the basis of the

In determining California taxable income,

passive activity credit for the current taxable

credit property by the amount of the original

nonresidents compute prior year items by

year and, if so, how much of the credit is

basis reduction of the property to the extent

taking into account only those items with a

allowed for the current year. The amount of the

that the credit has not been allowed under the

California source, subject to any limitations

credit that is disallowed in the current year is

carried forward.

FTB 3801-CR Instructions 2014 Page 1

Instructions For Form Ftb 3801-Cr - Passive Activity Credit Limitations - 2014

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