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

2011 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

California source, subject to any limitations

or franchise tax and taxpayers should

provided by law. For example, passive losses

group rental activities without regard to IRC

In general, for taxable years beginning on or

are limited to passive gains (IRC Section 469

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

after January 1, 2010, California law conforms

and R&TC Sections 17551 and 17561). Make

general rules regarding grouping of activities.

to the Internal Revenue Code (IRC) as of

this computation even if you were always a

Disclosure Requirements for Groupings

January 1, 2009. However, there are continuing

nonresident or a former resident who moved

On January 24, 2010, the Internal Revenue

differences between California and federal

out of California.

Service issued Revenue Procedure 2010-13

law. When California conforms to federal tax

Part-Year Resident

regarding disclosure requirements for

law changes, we do not always adopt all of

California taxes part-year residents as

groupings. California generally conforms to

the changes made at the federal level. For

residents for the period of the year they were

Revenue Procedure 2010-13, which is effective

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

California residents and as nonresidents for

for tax years beginning on or after January 25,

for conformity. Additional information can

the period of the year they were nonresidents.

2010. A separate disclosure statement is

be found in FTB Pub. 1001, Supplemental

Therefore, a part-year resident must compute

not required for state purposes. See federal

Guidelines to California Adjustments, the

any suspended passive losses as if they were

Form 8582-CR, Passive Activity Credit

instructions for California Schedule CA (540 or

a California resident for all prior years and as

Limitations, for more information.

540NR), and the Business Entity tax booklets.

if they were a nonresident for all prior years.

The instructions provided with California tax

A Purpose

These amounts must then be prorated based

forms are a summary of California tax law

upon the period of California residency and the

Use form FTB 3801-CR, Passive Activity Credit

and are only intended to aid taxpayers in

period of nonresidency for the year.

Limitations, to determine whether you have a

preparing their state income tax returns. We

Renewal Communities

passive activity credit for the current taxable

include information that is most useful to the

California law does not conform to the tax

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

greatest number of taxpayers in the limited

incentives related to “renewal communities.”

allowed for the current year. The amount of the

space available. It is not possible to include

California law does provide a variety of

credit that is disallowed in the current year is

all requirements of the California Revenue

independent, state-only economic development

carried forward.

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

area tax incentives to encourage revitalization

Taxpayers should not consider the tax booklets

B Special Note

of special designated areas. The Government

as authoritative law.

Code provides for the designation of Enterprise

Generally, California law is the same as

Registered Domestic Partners (RDP)

Zones (EZs), Local Agency Military Base

federal law concerning passive activity credit

For purposes of California income tax,

Recovery Areas (LAMBRAs), a Targeted Tax

limitations. Get federal Form 8582-CR, Passive

references to a spouse, husband, or wife also

Area (TTA), and Manufacturing Enhancement

Activity Credit Limitations, for definitions.

refer to a California RDP, unless otherwise

Areas (MEAs). California law does not provide

Personal service corporations and closely held

specified. When we use the initials RDP they

for a lower capital gains rate in any situation.

corporations subject to the passive activity

refer to both a California registered domestic

California law generally conforms to the federal

rules must use form FTB 3802, Corporate

“partner” and a California registered domestic

rules for expensing IRC Section 179 property

Passive Activity Loss and Credit Limitations,

“partnership,” as applicable. For more

with the exception that California law allows

instead of form FTB 3801, Passive Activity

information on RDPs, get FTB Pub. 737, Tax

a maximum deduction of $25,000. In lieu of

Loss Limitations, and form FTB 3801-CR.

Information for Registered Domestic Partners.

this deduction, the California Personal Income

Military Personnel

Tax law allows a taxpayer with a business in

S Corporations

an “Economic Development Area” to elect to

The passive activity loss (PAL) rules apply as

Servicemembers domiciled outside of

California, and their spouses/RDPs, may

expense $20,000 to $40,000 (depending on

if the S corporation was an individual. This

exclude the servicemember’s military

the designation) of certain specified equipment

means that losses from passive activities may

compensation from gross income when

used in the business.

not be used to offset nonpassive income,

except for $25,000 in losses from rental

computing the tax rate on nonmilitary income.

Expense treatment for small business, IRC

Requirements for military servicemembers

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

Section 79(b)(): California law generally

domiciled in California remain unchanged.

However, the material participation rules apply

conforms to the federal rules for expensing IRC

Military servicemembers domiciled in

as if the S corporation was a closely held

Section 179 property with the exception that

corporation. The material participation rules for

California must include their military pay in

California law allows a maximum deduction of

gross income. In addition, they must include

closely held corporations are explained in the

$25,000.

their military pay in California source income

instructions for federal Form 8810, Corporate

The following may affect the computation of

when stationed in California. However,

Passive Activity Loss and Credit Limitations.

your passive activity credit limitations:

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

military pay is not California source income

Material Participation in Real Property

when a servicemember is permanently

regulations for more information.

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

stationed outside of California. Beginning in

To compute your California passive activity

in 1994, and for federal purposes only, rental

2009, the Military Spouses Residency Relief

credit limitations for S corporations, use the

real estate activities of taxpayers engaged in

Act may affect the California income tax

worksheets in the instructions for federal

a real property business are not automatically

filing requirements for spouses of military

Form 8582-CR using California amounts.

treated as a passive activity. California did

personnel. For more information, get FTB

Enter the amount from line 21 of Form 100S,

not conform to this provision. For California

Pub. 1032, Tax Information for Military

California S Corporation Franchise or Income

purposes, all rental activities are treated as

Personnel.

Tax Return, on line 10 and line 22 of form

passive activities. Therefore, an election

Nonresident

FTB 3801-CR in place of the federal modified

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

In determining California taxable income,

adjusted gross income.

for purposes of California personal income

nonresidents compute prior year items by

taking into account only those items with a

FTB 3801-CR Instructions 2011 Page

Instructions For Form Ftb 3801-Cr - Passive Activity Credit Limitations - 2011

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