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What’s New

American Rescue Plan Unemployment Compensation – The American Rescue Plan Act of 2021 enacted on March 11, 2021, allows an exclusion from income up to $10,200 of unemployment compensation paid in 2020,

if your modified adjusted gross income (AGI) is less than $150,000. In general, California Revenue and Taxation Code (R&TC) does not conform to the changes. For California purposes, all unemployment compensation is excluded from income. For specific adjustments due to the American Rescue Plan Act of 2021 unemployment compensation exclusion, see instructions in this publication and get the Schedule CA (540), California Adjustments – Residents, or Schedule

CA (540NR), California Adjustments – Nonresidents or Part-Year Residents. The federal exclusion may result in a change to your federal adjusted gross income that may impact your California tax forms.

Federal Employee Retention Credit – Federal law allows an Employee Retention Credit for eligible employers who paid qualified wages beginning on or after March 13, 2020, and before January 1, 2022. Employers that claim these credits must reduce their wage expense by the amount of the credits. California

has no similar credits. Wage deductions that were disallowed under federal law as a result of claiming the federal Employee Retention Credit are allowed as a deduction for California and an adjustment is needed on Schedule CA (540) or Schedule CA (540NR). For more information, see instructions in this publication.

Small Business COVID-19 Relief Grant Program – For taxable years beginning on or after January 1, 2020, and before January 1, 2030, California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant

to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. For more information, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR).

Income Exclusion for Rent Forgiveness

–For taxable years beginning on or after January 1, 2020, and before January 1, 2025, gross income shall not include a tenant’s rent liability that is forgiven by a landlord or rent forgiveness provided through funds grantees received as a direct allocation from the Secretary of the Treasury based on the federal Consolidated Appropriations Act, 2021. For more information, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR).

Setting Every Community Up for Retirement Enhancement (SECURE) Act – The SECURE Act was enacted on December 20, 2019. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the Internal Revenue Code (IRC)

as of the specified date of January 1, 2015, with modifications. California law does not conform to the following federal provisions under the SECURE Act:

Repeal of maximum age of 70½ for traditional individual retirement arrangement (IRA) contributions.

Expansion of IRC Section 529 qualified tuition program accounts to cover costs associated with registered apprenticeship and qualified education loan repayments.

The above list is not intended to be all- inclusive of the federal and state conformities and differences. For specific adjustments, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR).

Coronavirus Aid, Relief, and Economic Security (CARES) Act – The federal CARES Act was enacted on March 27, 2020. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. California law does not conform to the following federal provisions under the CARES Act:

Charitable contributions changes Exclusion for certain employer payment of

student loans

Business interest limitations Health-savings account changes

California law conforms to the following federal provisions under the CARES Act:

Temporarily increases the amount of loans allowable from a qualified employer plan to $100,000 for coronavirus-related relief and delays by one year the due date for any repayment for an outstanding loan from a qualified employer plan if requirements are met.

The above lists are not intended to be all- inclusive of the federal and state conformities and differences. For specific adjustments, see instructions in this publication, and get Schedule CA (540) or Schedule CA (540NR), or refer to the R&TC.

Other Loan Forgiveness – California allows an exclusion from gross income for borrowers of forgiveness of indebtedness described in Section 1109(d)(2)(D) of the CARES Act as stated by section 278, Division N of the federal Consolidated Appropriations Act, 2021. The Consolidated Appropriations Act, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions generally do not apply to an ineligible entity. “Ineligible entity” means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of the Consolidated Appropriations Act, 2021. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on the applicable line(s) on your tax return. For

more information, see instructions in this publication, or go to ftb.ca.gov and search for AB 80.

California Microbusiness COVID-19 Relief Grant – For taxable years beginning on or after January 1, 2020, and before January 1, 2023, for personal income tax filers, and beginning on or after September 1, 2020, and before January 1, 2023, for corporate filers, California R&TC Sections 17158.1 and 24311 allow an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Microbusiness COVID-19 Relief Program that is administered by the Office of Small Business Advocate (CalOSBA). Enter the amount of this type of income on the applicable line(s) on your tax return. For more information, see instructions in this publication.

California Venues Grant – For taxable years beginning on or after September 1, 2020, and before January 1, 2030, California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Venues Grant Program that is administered by the CalOSBA. Enter the amount of this type of income on the applicable line(s) on your tax return. For more information, see instructions in this publication or see R&TC Sections 17158 and 24312.

Paycheck Protection Program (PPP) Loans Forgiveness – For taxable years beginning on or after January 1, 2019, California law allows an exclusion from gross income for covered loan amounts forgiven under the federal CARES Act, Paycheck Protection Program and Health Care Enhancement Act, Paycheck Protection Program Flexibility Act of 2020, or the Consolidated Appropriations Act, 2021.

The Consolidated Appropriations Act, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions do not apply to an ineligible entity. “Ineligible entity” means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of the Consolidated Appropriations Act, 2021. For more information, see instructions in this publication or R&TC Section 17131.8, and get Schedule CA (540) or Schedule CA (540NR).

Revenue Procedure 2021-20 allows taxpayers to make an election to report the eligible expense deductions related to a PPP loan on a timely filed original 2021 tax return including extensions. If a taxpayer makes an election for federal purposes, California will follow the federal treatment for California tax purposes.

Advance Grant Amount – For taxable years beginning on or after January 1, 2019, California law conforms to the federal law regarding the treatment for an emergency Economic Injury Disaster Loan (EIDL) grant under the federal CARES Act or a targeted

EIDL advance under the Consolidated Appropriations Act, 2021.

Worker Status: Employees and Independent Contractors – Some individuals may be classified as independent contractors for federal purposes and employees for California purposes, which may also cause changes

in how their income and deductions are classified. For specific adjustments, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR).

Rental Real Estate Activities – For taxable years beginning on or after January 1, 2020, the dollar limitation for the offset for rental real estate activities shall not apply to the low income housing credit program. For more information, see R&TC Section 17561(d)(1), and get form FTB 3801-CR, Passive Activity Credit Limitations.

R&TC Section 41 Reporting Requirements – Beginning in taxable year 2020, California allows individuals and other taxpayers operating under the personal income tax law to claim credits and deductions of business expenses paid or incurred during the taxable year in conducting commercial cannabis activity. Sole proprietors conducting a commercial cannabis activity that is licensed under California Medicinal and Adult-Use Cannabis Regulation and Safety Act should file form FTB 4197, Information on Tax Expenditure Items. The FTB uses information from form FTB 4197 for reports required by the California Legislature. For specific adjustments, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR). Get form FTB 4197 for more information.

Net Operating Loss Suspension – For taxable years beginning on or after January 1, 2020, and before January 1, 2023, California has suspended the net operating loss (NOL) carryover deduction. Taxpayers may continue to compute and carryover an NOL during the suspension period. However, taxpayers with net business income or modified adjusted gross income of less than $1,000,000 or with disaster loss carryovers are not affected by the NOL suspension rules.

The carryover period for suspended losses is extended by:

Three years for losses incurred in taxable years beginning before January 1, 2020.

Two years for losses incurred in taxable years beginning on or after January 1, 2020, and before January 1, 2021.

One year for losses incurred in taxable years beginning on or after January 1, 2021, and before January 1, 2022.

For more information, see R&TC

Section 17276.23 and get form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts.

Excess Business Loss Limitation – The federal CARES Act made amendments to IRC Section 461(l) by eliminating the excess business loss limitation of noncorporate taxpayers for taxable year 2020 and retroactively removing the limitation for taxable years 2018 and 2019. California does not conform to those amendments. For taxable year 2020, complete form FTB 3461, California Limitation on Business Losses, if you are a noncorporate taxpayer and your net losses from all of your trades or businesses are more than $259,000 ($518,000 for married taxpayers filing a joint return). For specific adjustments, see instructions in this publication and get Schedule CA (540) or Schedule CA (540NR), and form FTB 3461.

General Information

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the IRC as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in the instructions for California Schedule CA (540) or Schedule CA (540NR), and the Business Entity tax booklets.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the R&TC in the instructions. Taxpayers should not consider the instructions as authoritative law.

Conformity

For updates regarding federal acts, go to ftb.ca.gov and search for conformity.

Loophole Closure and Small Business and Working Families Tax Relief Act of 2019 – The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the IRC. California R&TC does not conform to all of the changes. In general, for taxable years beginning on or after January 1, 2019, California conforms to the following TCJA provisions:

•California Achieving a Better Life Experience (ABLE) Program

•Student loan discharged on account of death or disability

•Federal Deposit Insurance Corporation (FDIC) Premiums

•Excess employee compensation

•Excess business loss

Federal Tax Reform – In general, California R&TC does not conform to all of the changes under the TCJA. For specific adjustments due to the TCJA, see instructions in this publication and the Schedule CA (540), or Schedule CA (540NR).

Registered Domestic Partners (RDP) – Under California law, RDPs must file their California income tax returns using either the married/RDP filing jointly or married/RDP filing separately filing status. RDPs have the same legal benefits, protections, and responsibilities as married couples unless otherwise specified.

If you entered into in a same sex legal union in another state, other than a marriage, and that union has been determined to

be substantially equivalent to a California registered domestic partnership, you are required to file a California income tax return using either the married/RDP filing jointly or married/RDP filing separately filing status. For purposes of California income tax, references to a spouse, husband, or wife also refer to a California RDP, unless otherwise specified. When we use the initials RDP they refer to both a California registered domestic “partner” and a California registered domestic “partnership,” as applicable. For more information on RDPs, get FTB Pub. 737, Tax Information for Registered Domestic Partners.

Purpose

Use these guidelines to make adjustments to federal adjusted gross income that are necessary because of current year or prior year differences between California and federal law. Generally, you report these adjustments directly on Schedule CA (540 or 540NR). If required to make multiple adjustments for any one line on Schedule CA (540 or 540NR), attach a statement to your return summarizing these adjustments.

In some cases you need to complete other forms or schedules to figure the adjustment to carry to Schedule CA (540 or 540NR). See “Order Forms and Publications” in your tax booklet for information about ordering forms or go to ftb.ca.gov/forms.

If the taxpayer is classified as an employee for California purposes, enter the amount reported as gross income of the business from federal Schedule C (Form 1040), Profit or Loss From Business, line 7, as wages on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column C.

Combat zone foreign earned income exclusion

Combat zone extended to Egypt’s Sinai Peninsula

•Sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act

Income exempted by U.S. treaties

Employee income exclusions for ridesharing fringe benefits

California Qualified Stock Options (CQSOs)

Native American earned income exemption

For taxable years beginning on and after January 1, 2018, California does not conform to the federal foreign earned income exclusion for amounts received by certain U.S. citizens or resident aliens with an abode in the U.S., specifically contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones.

The TCJA extended combat zone tax benefits to the Sinai Peninsula of Egypt. California does not conform.

California excludes from income the sick pay received under these Acts.

Income exempted by treaty under federal law may be excluded for California only if the treaty specifically excludes the income for state purposes. If a treaty does not specifically exempt income from state income tax, California requires the reporting of adjusted gross income from all sources.

Under federal law and the provisions administered by the Employment Development Department, certain qualified transportation benefits are excluded from gross income. Under the California R&TC, there are no monthly limits for the exclusion of these benefits and California’s definitions are more expansive. Federal law provides an income exclusion for the value of qualified parking provided to an employee. Federal law also provides an income exclusion for commuter highway transportation and transit passes provided to an employee.

California law provides an income exclusion for compensation or the fair market value of other benefits (except for salary or wages) received for participation in a California ridesharing arrangement (subsidized parking, commuting in a third-party vanpool, a private commuter bus, a subscription taxipool, and monthly transit passes provided for employees and their dependents).

California law provides an income exclusion for California qualified stock options (issued on or after January 1, 1997, and before January 1, 2002), that are exercised by an individual who has earned income for the taxable year from the corporation granting the CQSO of $40,000 or less; and has exercised options for no more than 1,000 shares with a combined fair market value of less than $100,000 (determined at the time the options are granted). Get FTB Pub. 1004, Equity-Based Compensation Guidelines, for more information.

Federal law taxes income received by Indians from reservation sources.

California does not tax federally recognized tribal members living in California Indian country who earn income from any federally recognized California Indian country. Military compensation is considered income from reservation sources.

Native Americans who are domiciled on an Indian reservation and receive military compensation must refigure any AGI percentage calculation(s) by first subtracting military compensation from Federal AGI.

Enrolled members who receive reservation sourced per capita income must reside in their affiliated tribe’s Indian country to qualify for tax exempt status. For more information, get form FTB 3504, Enrolled Tribal Member Certification.

Enter the amount excluded from federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 8f, column C.

Enter the amount of combat pay excluded from federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column C. Get FTB Pub. 1032 for more information.

Enter qualifying sick pay included in federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column B.

Enter the amount excluded from federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column C.

Enter the amount of ridesharing fringe benefits received and included in federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column B.

Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column B the amount included in federal income that qualifies for the California exclusion.

Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column B the earnings and/or Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 8f, column B, any other income that is included in federal income that is exempt for California.

Nonresident employee compensation of merchant seamen, rail carriers, motor carriers, and air carriers

For California, nonresidents may exclude the following from gross income: compensation for the performance of duties of certain merchant seamen and compensation of an employee of a rail carrier, motor carrier, or air carrier.

Enter the amount included in federal income that qualifies for the California exclusion on Schedule CA (540NR), Part II, Section A, line 1, column B. Get Pub. 1031, Guidelines for Determining Resident Status, for more information.

Exclusion for In-Home Supportive Services (IHSS) supplementary payments

California law allows an exclusion from gross income for IHSS supplementary payments received by IHSS providers. IHSS providers only receive a supplementary payment if they paid a sales tax on the IHSS services they provide. The supplementary payment is equal to the sales tax paid plus any increase in

the federal payroll withholding paid due to the supplementary payment.

Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column B the IHSS supplementary payments included in federal wages.

Taxable Interest Income

Non-California bonds:

1)United States

2)Other states

Interest income received from settlement payments from individuals persecuted during the Ottoman Turkish Empire from 1915-1923

Exempt interest dividends (Mutual Funds)

Federal law requires the interest earned on federal bonds (U.S. obligations) to be included in gross income. California does not tax this interest income. The following are not considered U.S. obligations for California purposes: Federal National Mortgage Association (Fannie Mae); Government National Mortgage Association (Ginnie Mae); or Federal Home Loan Mortgage Corporation (Freddie Mac).

Federal law does not tax interest from state or local bonds. California taxes the interest from non-California state and local bonds.

California law excludes from gross income, interest income received from settlement payments by individuals persecuted by the regime that was in control of the Ottoman Turkish Empire from 1915 until 1923, or the individual’s heirs or estate.

California does not tax dividends paid by a fund attributable to interest received from U.S. obligations or California state or municipal obligations if at least 50% of the fund’s assets would be exempt from California tax when held by an individual. California taxes dividends derived from mutual funds that are paid from interest received from obligations (bonds) issued by non-California states or municipalities in other states. The fund will provide a statement regarding the dividends it pays.

Enter the amount of federal bond interest included in federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column B.

Enter the interest from non-California state or local bonds on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column C.

Enter the interest on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column B.

If the value of U.S. and California state or municipal obligations is at least 50% of the fund’s total assets, enter the amount of exempt interest dividends that are attributed to U.S. obligations included in federal income on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column B.

If the taxpayer received any dividends from the fund attributable to obligations issued by non-California states or municipalities within other states that were excluded from the taxpayer’s federal income, enter that excluded amount on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column C.

Noncash patronage dividend from farmers’ cooperatives or mutual associations

Controlled Foreign

Corporation (CFC)

Distributions of pre-1987 earnings from S corporations

Regulated Investment

Company (RIC)

IRA Distribution

IRA basis adjustments

Roth IRAs

Pensions and Annuities

Railroad retirement benefits

Pension plan – small business tax credit for new retirement plan expenses

Federal law taxes the dividend in the year of receipt. California permits an election to include the dividend in gross income either when received or when redeemed. Once an election is made, this method must be followed unless a change in the method of reporting is approved by the Franchise Tax Board (FTB).

California taxes CFC dividends in the year distributed rather than in the year earned.

Prior to 1987, California treated all federal S corporations as C corporations. So when a federal S corporation first becomes a California S corporation, its initial accumulated adjustments account (AAA) has a zero balance regardless of the federal

AAAbalance. If distributions from the S corporation exceed the California balance in the AAA, you have a distribution from pre-1987 earnings.

California taxes the undistributed capital gain from a RIC in the year distributed rather than in the year earned.

There may be differences in the taxable amount of the distribution depending on when the contributions were made, if you changed residency status after you first began making contributions to your IRA, or made different deductions for California because of differences between your California and federal self-employment income. You will need to calculate your IRA basis as if you were a California resident for all prior years.

Federal law and California law are the same regarding contributions, conversions, and distributions. However, the taxable amount of a distribution may not be the same because of basis differences.

California does not tax railroad retirement benefits reported on federal Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board, or RRB-1099, Payments by the Railroad Retirement Board.

Federal law allows an income tax credit for 50% of the first $1,000 in administrative and retirement-education expenses for any small business that adopts a new qualified defined benefit or defined contribution plan. The federal deduction is reduced by the amount of the credit. California has no similar credit.

If you elect or elected to include the dividend in the year redeemed, enter the amount received on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A,

line 3, column B. Enter the amount redeemed on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 3, column C.

If CFC dividends are earned in one year and distributed in a later year, enter the dividends included in federal income for the year earned on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A,

line 3, column B and enter the dividends for the year distributed on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 3, column C.

Enter distributions from pre-1987 earnings (or earnings in any later year that the corporation was a federal S corporation and a California C corporation) on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 3, column C.

If capital gain from a RIC is earned in one year and distributed in a later year, enter the capital gain included in federal income for the year earned on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 3, column B and enter the capital gain for the year distributed on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 3, column C.

Get FTB Pub. 1005, Pension and Annuity Guidelines, for more information.

Get FTB Pub. 1005 for more information.

Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 5b, column B, the amount of tier 1 (non-Social Security equivalent) or tier 2 railroad retirement benefits included in adjusted gross income on your federal return. Get FTB Pub. 1005 for more information.

Enter the amount of the income tax credit on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B.

Enter the current year interest earned as an adjustment on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, column C. Enter the current year taxable dividends as an adjustment on Schedule CA (540), Part I, Section A, or Schedule CA (540NR), Part II, Section A,

line 3, column C.

Enter the amount from Schedule CA (540), Part I or Schedule CA (540NR), Part II, column A, line 12, in column B, line 12. Enter the amount of any employer contribution from federal Form W-2, box 12, code W on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 1, column C.

Enter the required adjustment from Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column A, in line 8f, column B.

Archer Medical Savings

Account (Archer MSA)

Distribution

Social Security Benefits

Social security benefits and equivalent tier 1 railroad retirement benefits

Generally, federal law and California law are the same. However, since California does not recognize Health Savings Accounts (HSAs), a rollover from an MSA to an HSA is treated as a distribution not used for qualified medical expense. For California, the distribution is included in California taxable income and the additional 12.5% tax applies (R&TC Section 17215).

California does not tax social security benefits and equivalent tier 1 railroad retirement benefits.

Enter the amount distributed, less interest or dividend earnings previously taxed by California, on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 6, column B, the amount of social security benefits and equivalent tier 1 railroad retirement benefits you included in adjusted gross income on your federal return.

Report your capital assets on Schedule D (540 or 540NR), California Capital Gain or Loss Adjustment, and to figure the adjustment to make on Schedule CA (540 or 540NR).

Deferral and exclusion of capital gains in qualified opportunity zone funds

Gain on sale or disposition of a qualified assisted housing development to low-income residents or to specified entities who maintain housing for low-income residents

The TCJA established Opportunity Zones. IRC Sections 1400Z-1 and 1400Z-2 provide a deferral of inclusion of gross income for capital gains reinvested or invested in a qualified opportunity zone fund, and exclude capital gains from the sale or exchange of an investment of such funds. California does not conform.

For federal purposes, the capital gains deferred as a result of reinvesting or investing are included in gross income in the year of sale or disposition of the investment. California does not conform.

Federal law does not allow special treatment on gains related to the sale of certain assisted housing. California law permits the deferral of such gain, under certain conditions, if the proceeds are reinvested in residential real property (other than a personal residence) within two years of the sale.

Use California Schedule D (540 or 540NR) if you claim the federal IRC Sections 1400Z-1 and 1400Z-2 on your federal return. Enter the entire gain realized on line 1, column (e).

If, for California purposes, gains from investment in qualified opportunity zone property had been included in income during previous taxable years, do not include the gain in the current year income.

Enter the transaction on California Schedule D (540 or 540NR), line 1. In column (e)

enter “-0- R&TC Section 18041.5.” Reduce the basis of replacement property by the gain deferred. Attach a schedule to your return reflecting computation of basis in the replacement property, or a statement of intent to replace within the replacement period.

If there is a difference between the amounts excluded (or depreciated, if recapture applies) for federal and California, complete California Schedule D (540 or 540NR). Transfer the amount from California Schedule D, line 12a, to Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 7, column B (if gain is less than federal). Transfer the amount from California Schedule D, line 12b, to Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 7, column C (if gain is more than federal).

Undistributed capital gains for regulated investment company (RIC) shareholders

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

Capital loss carrybacks

Exclusion of deferral and gain on the sale of qualified small business stock

Federal law requires certain undistributed capital gains reported on federal Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, to be included in the gross income of the mutual fund shareholder and allows a tax credit for the capital gains tax paid by the RIC. California has no similar provision.

Federal gain or loss may differ from the California gain or loss due to differences in the basis of property. For property inherited on or after January 1, 1987, the California basis and the federal basis are the same.

Federal law allows a deduction for carrybacks of certain capital losses. California has no similar provision.

Federal law allows deferral and exclusion under IRC Section 1045 and IRC Section 1202 of the gain on sale of qualifying small business stock, that was held for more than five years. California does not conform.

Do not enter the amount of undistributed capital gains on California Schedule D (540 or 540NR).

Report the amount of California capital gains and losses on California Schedule D (540 or 540NR).

Report the amount of California capital gains and losses on California Schedule D (540 or 540NR).

Use California Schedule D (540 or 540NR) if you claim the federal IRC Section 1045 deferral or IRC Section 1202 exclusion on your federal return. Enter the entire gain realized on Schedule D (540 or 540NR), line 1, column (e).

Additional Income

Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

Enter the amount of state income tax refund included in federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 1, column B.

Enter the alimony and separate maintenance payment received not included in federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 2a, column C.

Enter the amount not included in federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 2a, column C.

Gross income from the entire business, trade, or profession is included in the nonresident’s adjusted gross income from all sources. The nonresident’s California source business income is generally determined by an apportionment formula. Refer to Cal. Code Regs., tit. 18, Section 17951.

Use form FTB 3885A, Depreciation and Amortization Adjustments, to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

If an unacceptable method was used before the move into California, use the straight-line method to compute the basis in the property.

Enter the amortization for the California facilities on form FTB 3885A. Compare the California amortization to the federal amortization and enter the difference on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column C.

Expenditure for tertiary injectants incurred in the crude oil industry

Federal law allows a deduction for the cost of tertiary injectants which are part of a tertiary recovery system. California law allows a depreciation deduction if the tertiary injectant qualifies as property used in a trade or business or is held for the production of income.

Enter the amount of tertiary injectants deducted on your federal return on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column C. Attach a schedule reflecting the depreciation computation of tertiary injectants placed in service during the taxable year. Then complete form FTB 3885A.

Reduced recovery periods for fruit bearing grapevines replaced in a California vineyard on or after January 1, 1992, as a result of phylloxera infestation on or after January 1, 1997, as a result of Pierce’s disease

Income forecast method of depreciation

Depreciation limitation

For assets placed in service after August 5, 1997, federal law limits the income forecast method of depreciation to film, video tape, sound recordings, copyrights, books, patents, and other property to be specified by federal regulations. California conformed to this limitation for assets placed in service after December 31, 1997.

California does not conform to the federal modification to depreciation limitations on luxury automobiles under IRC Section 280F.

Use form FTB 3885A to figure the depreciation adjustment to enter on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the adjustment to make on Schedule CA (540 or 540NR).

Use form FTB 3885A to figure the amortization adjustment to enter on Schedule CA (540 or 540NR).

Business Income or (Loss) — Adjustments to Basis or Business Deductions

If you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column C.

If the taxpayer is classified as an employee for California purposes, enter the amount of federal business income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column B.

Enter the amount of the commercial cannabis activity expenses on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column B.

Figure the difference between the amounts allowed using federal law and California law. Enter the difference on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column B or column C.

Figure the difference between the amounts allowed using federal law and California law. Enter the difference on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column B.

Enter the amount received and included in federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B,

line 3, column B.

Enter the amount of business expense deduction reported on your federal return on Schedule CA (540), Part I, Section B or Schedule

CA (540NR), Part II, Section B, line 3, column C.

Enter the amount of this deduction on Schedule CA (540), Part I, Section B, or Schedule

CA (540NR), Part II, Section B, line 3, column C.

Donated agricultural products transportation credit

Farmworker housing credit

Clean fuel vehicles first year deduction

Basis adjustment for sales or use tax credit for property used in a former Enterprise Zone (EZ), LAMBRA, Targeted Tax Area (TTA), or LARZ.

Credit for employer-paid child care center and services

Credit for employer-paid child care plan

Federal law has no comparable credit. Under California law, deductions are not allowed for the portion of expenses equal to the credit.

The Farmworker Housing Credit is expired. The credit was allowed from each taxable year beginning on January 1, 1997 and before January 1, 2009. The credit carryover is allowed until exhausted. Federal law has no comparable credit.

California has not conformed with federal law for the first year deduction on Clean Air Fuel.

Federal law has no comparable credit, but IRC Section 164(a) requires an increase in basis for the amount of sales or use tax paid. Under California law, depreciation is computed based on cost, without regard to the sales or use tax allowed as a credit. Federal and state basis will differ due to the increase in federal basis by the addition of the sales or use tax. The sales or use tax credit could only be taken on qualified property purchased on or before December 31, 2013, and placed in service on or before December 31, 2014.

The Employer Childcare Program Credit has expired. The credit was allowed from each taxable year beginning on January 1, 1994 and before January 1, 2012. The credit carryover is allowed until exhausted.

The Employer Childcare Contribution Credit has expired. The credit was allowed from each taxable year beginning on January 1, 1994 and before January 1, 2012. The credit carryover is allowed until exhausted.

Enter on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column C, the portion of the deduction claimed on your federal return that was used to claim the California credit.

Get form FTB 3540, Credit Carryover and Recapture Summary.

Add the amount deducted from federal income to the total on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 22, column B.

Complete form FTB 3885A, Part III if you are depreciating the cost of the property in excess of the allowable credit.

Get form FTB 3540 for more information.

Get form FTB 3540 for more information.

Get form FTB 3548, Disabled Access Credit for Eligible Small Businesses.

Indian employment credit

Abandonment or tax recoupment fees for open-space easements and timberland preserves

Real Estate Professionals

–Material participation in a rental real estate activity

Research credit

Property for which a public utility provided an energy conservation subsidy on or after January 1, 1995, and before January 1, 1997

Employer wage expenses for Employee Retention Credit

Employer wage expenses for Work Opportunity Credit

Qualified clinical testing expenses

Under federal law, a nonrefundable credit is available to employers for certain wages and health insurance costs paid or incurred by the employer for taxable years after January 1, 1994, and before January 1, 2021, for certain full-time or part-time employees who also are enrolled members of an Indian tribe or are spouses of enrolled members. California did not conform to this provision.

Federal law allows a deduction for expenses incurred in a trade or business or for the production of income. California denies a deduction for fees paid by California property owners on termination of open-space easements or timberland preserve status.

Beginning with the 1994 tax year and for federal purposes only, rental real estate activities conducted by persons in a real property business are not automatically treated as passive activities. California did not conform to this provision and these activities are still considered passive under California law.

Federal law allows a credit for research expenses and requires that the deduction for research expenses be reduced by the amount of the credit allowed. California conforms to federal law, but requires the amount of research expenses to be reduced by the amount of the California credit. In addition, California law requires the use of the California tax bracket when determining the elective credit amount.

Federal law allows an exclusion from income for any subsidy provided directly or indirectly by a public utility for the purchase or installation of any energy conservation measure with respect to a dwelling unit. The adjusted basis of the property must be reduced by the amount excluded from income. California does not conform for amounts received after December 31, 1994, and before January 1, 1997.

Federal law allows an Employee Retention Credit for eligible employers who paid qualified wages beginning on or

after March 13, 2020, and before January 1, 2022. Employers that claim these credits must reduce their wage expense by the amount of the credits. California has no similar credits.

Federal law allows a Work Opportunity Credit for employers that hired individuals on or before December 31, 2014 from certain target groups and recipients of long-term family assistance. Employers that claim these credits must reduce their wage expense by the amount of the credits. California has no similar credits. If, for federal purposes, you capitalized any costs on which you figured the credit, the federal basis for amortization may be lower than the California basis.

Federal law allows an Orphan Drug Credit for qualified clinical testing expenses incurred in testing drugs for rare diseases or conditions. A business must reduce its deduction for qualified clinical testing expenses by the amount of the credit.

Enter the amount of business expense denied under federal law on Schedule CA (540), Part I, Section B, or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B.

Enter the amount of fees incurred and deducted on your federal return on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column C.

To figure the adjustment to make on Schedule CA (540), Part I, Section B or Schedule

CA (540NR), Part II, Section B, line 3 or line 5, use form FTB 3801, Passive Activity Loss Limitations, and include these activities when completing the California Passive Activity Worksheet and the California Adjustment Worksheets on Side 2 of form FTB 3801.

Enter the amount of research expenses deducted on your federal return on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column C. Enter the amount of California research expenses after reduction for California research credit on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B.

Use form FTB 3885A to figure the adjustment to enter on Schedule CA (540 or 540NR).

Enter the amount of the federal Employee Retention Credit that reduced the federal deduction for wages on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B.

Enter the amount of the federal Work Opportunity Credit that reduced the federal deduction for wages on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B. Use form

FTB 3885A, Part IV, to figure the capitalized costs amortization adjustment to enter on Schedule CA (540 or 540NR).

Enter the amount of the federal Orphan Drug Credit that reduced the federal deduction for qualified clinical testing expenses on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column B.

Enter on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, line 5, or line 6, column C, the amount taken as a federal deduction.

Enter on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 3, column B, the amount taken as a federal credit.

Complete and attach federal Form 8824, Like-Kind Exchanges, using California amounts. Get Schedule D-1 to figure the adjustment to make on Schedule CA (540 or 540NR).

Get Schedule D-1, Sales of Business Property, to figure the adjustment to make on Schedule CA (540 or 540NR).

Get Schedule D-1 to figure the gain.

Pass-through of income and deductions from partnerships, S corporations, estates, and trusts

Items of income and deduction from pass-through entities may differ due to various differences between federal and state law. Refer to federal Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc., or federal Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation, in the case of REMICs, to determine items of income and deduction for federal purposes. Refer to California Schedules K-1 (100S, 541, 565, or 568) to determine items of income and deduction from pass-through entities for California purposes.

Follow the instructions for Schedules K-1 (100S, 541, 565, or 568). Some items are reported directly on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B,

line 5, and some items must be reported on other forms and schedules. Note: Part-year residents must allocate income between the period of residency and the period of nonresidency in a manner that reflects the actual date of realization of partnership, S corporation and certain trust income. In the absence of information that reflects the actual date of realization, the taxpayer must allocate an annual amount on a proportional basis between the two periods, using a daily pro-rata methodology. Get FTB Pub. 1100, Taxation of Nonresidents and Individuals Who Change Residency, for more information.

Accumulation distribution to beneficiaries on which the required California taxes have not been paid by a trust

Accumulation distribution to beneficiaries on which the trust was not required to pay California tax because the beneficiaries’ interest was contingent

Amounts included in gross

income of United States shareholders from foreign corporations

Unemployment Compensation

compensation

Paid Family Leave (PFL)

program is part of the

state disability insurance

program administered by the

Employment Development

Department (EDD)

Federal law taxes the accumulated income of a trust under IRC Sections 665-668. If a trust has a California resident trustee or beneficiary, the beneficiary is non-contingent, and the trust has not filed a California return and paid California tax as the income was accumulated, then the full amount of the accumulation distribution is taxable to the beneficiary in the year the accumulation distribution is received.

Federal law taxes the accumulated income of a trust under IRC Sections 665-668. If a trust has a California resident trustee or beneficiary, the beneficiary is contingent, and the trust has not filed a California return and paid California tax as the income was accumulated, then the beneficiary is entitled to the benefit of income averaging under the provisions of R&TC Sections 17745(b) and (d).

Under federal law, IRC Section 951, if a foreign corporation is a controlled foreign corporation (CFC) at any time during any taxable year, then U.S. shareholders who own stock in a CFC on the last day of the taxable year in which it was a CFC must include in gross income their pro-rata share of income. The pro-rata shares are included in the income of U.S. shareholders even though there may be intervening entities in a chain between a CFC and such shareholders. California has no similar provision.

California does not tax unemployment compensation.

Compensation paid from the PFL Program is not taxable by California. However, it is taxable for federal purposes.

If you received a federal Schedule J (1041), Accumulation Distribution for Certain Complex Trusts, and did not receive a California Schedule J (541), Trust Allocation of an Accumulation Distribution, an adjustment is required because the trust did not file a California return and pay the tax as the income was accumulated. The accumulation distribution from federal Schedule J (1041) must be adjusted for California purposes. This information must be provided by the trustee.

Use California form FTB 5870A, Tax on Accumulation Distribution of Trusts, to compute the part of the accumulation distribution includable in your California adjusted gross income.

Enter the amount of income received from a CFC and included in federal income on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 5, column B.

Enter on Schedule CA (540), Part I, Section B, or Schedule CA (540NR), Part II, Section B, line 7, column B, the amount of unemployment compensation you included in adjusted gross income on your federal return.

Enter the amount on Schedule CA (540), Part I, Section B or Schedule CA (540NR), Part II, Section B, line 7, column B.

If for federal purposes, you excluded unemployment compensation from your income on Schedule 1 (Form 1040), line 8, enter this amount as a positive number on Schedule

CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C and write “UCE” on line 8f.

If you included any amount as income for federal purposes, enter this amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

If you included any amount as income for federal purposes, enter this amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

If you included any amount as income for federal purposes, enter this amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Enter the amount included in federal income on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B and write “IRC 965” on line 8f and at the top of Form 540 or Form 540NR.

Global intangible low-taxed income (GILTI) under IRC Section 951A

Excess business loss

Under the TCJA, if you are a U.S. shareholder of a controlled foreign corporation, you must include your GILTI in your income. California does not conform.

California law generally conforms to the TCJA regarding the disallowance of excess business loss deductions of

non-corporate taxpayers. For California purposes, any disallowed loss will be treated as a carryover excess business loss instead of an NOL carryover for the subsequent taxable year.

The federal CARES Act made amendments to IRC

Section 461(l) by eliminating the excess business loss limitation of noncorporate taxpayers for taxable year 2020 and retroactively removing the limitation for taxable years 2018 and 2019.

California does not conform to those amendments.

Enter the amount included in federal income on Schedule CA (540), Part I or Schedule

CA (540NR), Part II, line 8f, column B and write “IRC 951A” on line 8f.

For taxable year 2020, complete form FTB 3461 if you are a noncorporate taxpayer and your net losses from all of your trades or businesses are more than $259,000 ($518,000 for married taxpayers filing a joint return).

Enter the amount from form FTB 3461, line 16, on Schedule CA (540), Part I or Schedule

CA (540NR), Part II, line 8f, column C. Attach form FTB 3461 to the tax return. See form FTB 3461 instructions if line 16 amount also includes excess business losses carryover from the prior year.

If you elected to defer income for federal purposes, make an adjustment on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

If the amount was excluded for federal purposes, make an adjustment on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

If the amount was excluded for federal purposes, make an adjustment on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C, the value of any medal awarded or prize money that qualifies for the federal exclusion.

Enter the amount included in federal AGI on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8a, column B, the amount of California lottery winnings included in adjusted gross income on your federal return.

Enter as a positive number on Schedule CA (540), Part I or Schedule CA (540NR), Part II,

line 8b, column B, the amount from your 2020 form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts.

Enter as a positive number on Schedule

CA (540), Part I or Schedule CA (540NR), Part II, line 8c, column C, the federal NOL. Use form FTB 3805V to figure the California NOL carryover.

4)NOL from former Enterprise Zones (EZs), LAMBRAs, or TTAs

Reward from a crime hotline

Foreign-earned income and housing expense exclusion

Beverage container recycling income

Rebates or vouchers from a local water agency, energy agency, or energy supplier

Original issue discount (OID) for debt instruments issued (and loans made) in 1985 and 1986

Foreign income of nonresident aliens

Income exempted by U.S. tax treaties

Grants paid to low-income individuals

Death benefits received from the State of California for military members killed in the line of duty

Settlement payments received by persons persecuted by the regime that was in control of the Ottoman Turkish Empire from 1915 until 1923

Federal law has no comparable deduction.

California does not tax a reward authorized by a government agency and received from a crime hotline established by a government agency or nonprofit organization.

Under federal law, IRC Section 911, a qualified individual may elect to exclude certain foreign-earned income and an employer- provided housing allowance. California has no similar provision.

Federal law taxes beverage container recycling income. California law does not tax income received by a consumer for recycling empty beverage containers.

California law allows an income exclusion for rebates or vouchers from a local water agency, energy agency, or energy supplier for the purchase and installation of water conservation appliances and devices. Federal law has no similar exclusion.

In the taxable year in which the debt instrument matures, is sold, exchanged, or otherwise disposed of, you must recognize the difference between the amount reported on your federal return and the amount reported for California purposes.

Federal Form 1040-NR, U.S. Nonresident Alien Income Tax Return, requires that only United States source income be reported. California requires the reporting of adjusted gross income from all sources.

California is not affected by U.S. treaties with foreign countries unless they specifically apply to state income taxes. If a treaty does not specifically exempt income from state income tax, California requires the reporting of adjusted gross income from all sources.

California law allows an income exclusion for grants paid to low-income individuals to construct or retrofit buildings to be more energy efficient. Federal law has no similar exclusion.

California allows an exclusion from gross income, death benefits received from the State of California National Guard, State Military Reserve, or Naval Militia who dies or is killed after March 1, 2003, while on duty.

California law provides an income exclusion for settlement payments received by an eligible individual, defined as a person persecuted by the Regime that was in control of the Ottoman Turkish Empire from 1915 until 1923, or the individual’s heirs or estate.

Use form FTB 3805Z, form FTB 3807, or form FTB 3809, to figure the NOL and enter the result as a positive number on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8e, column B.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B, the amount of such a reward you included in adjusted gross income on your federal return.

Enter the amount of foreign-earned income and housing allowance excluded under IRC Section 911 on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Enter the amount of beverage container recycling income reported on your federal return on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Enter the amount included in federal AGI on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Issuer (debtor) – Enter the difference between the federal deductible amount and the California deductible amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Holder (lender) – Enter the difference between the amount included in federal gross income and the amount included for California purposes on Schedule CA (540), Part I or Schedule

CA (540NR), Part II, line 8f, column C.

Adjust federal income to reflect worldwide income computed under California statutes. Enter losses from foreign sources on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B. Enter foreign source income on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Adjust federal income to reflect worldwide income computed under California statutes. Enter losses from foreign sources on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B. Enter foreign source income on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Enter the amount included in federal AGI on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B, the amount of death benefits received and reported in federal income.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B, the settlement payments amount reported in federal income that qualifies for the California exclusion.

Survivor benefits received for a public safety officer killed in the line of duty

Federal subsidies for prescription drug plans

Native Americans per capita payments

Certain employer payments of student loans

Student loan discharged due to closure of a for-profit- school

Federal law provides an exclusion from gross income, for survivor benefits attributable to service by a public safety officer who is killed in the line of duty before January 1, 1997, California does not conform.

Federal law provides an exclusion from gross income of certain federal subsidies for prescription drug plans. California does not conform.

Federal law taxes per capita distributions regardless of where the tribal member resides.

California does not tax per capita distributions received by tribal members who live in Indian country affiliated with their tribe that are sourced from the same Indian country where they are a member.

California does not tax per capita distributions received by a nonresident.

California taxes per capita distributions received by California resident tribal members who reside outside their affiliated tribal Indian country. For more information, get form FTB 3504, Enrolled Tribal Member Certification.

California does not conform to the federal CARES Act regarding the exclusion of student loan payments made on behalf of an employee by an employer.

California law allows an income exclusion for income that would result from the discharge of any student loan of an eligible individual. An individual is eligible for the exclusion if any of the following apply during the taxable year.

1)The individual is granted a discharge of any student loan because:

a.The individual successfully asserts that the school did something wrong or failed to do something that it should have done; or

b.The individual could not complete a program of study due to the school closing.

2)The individual attended a Brightwood College school on or before December 5, 2018, and is granted a discharge of any student loan made in connection with attending that school, and that discharge is not covered under item 1 above.

3)The individual attended a location of The Art Institute of California and is granted a discharge of any student loan made in connection with attending that school, and that discharge is not covered under item 1 above.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C, the amount of survivor benefits that qualifies for the federal exclusion.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C, the amount that qualifies for the federal exclusion.

Enter on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column B the per capita distributions included in federal income that are exempt for California and write “FTB 3504” on line 8f. Attach form FTB 3504 to the Form 540 or Form 540NR.

Enter the amount of loan payment on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 8f, column C.

Enter the amount included in federal income on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, line 8g, column B.

Adjustments to Income

Enter the amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 10, column B.

Certain business expenses of reservists, performing artists, and fee-basis governmental officials

Moving expenses

Deductible part of self- employment tax

Self-employed health insurance deduction

Alimony and separate maintenance payments

California law conforms to federal law in the tax treatment of expenses for reservists, performing artists, and fee-basis governmental officials. However, there could be continuing differences in the depreciation deduction such as IRC Section 179 or bonus depreciation.

The TCJA eliminated the $3,000 deduction for living expenses for members of Congress while away from home. California does not conform.

California does not conform to the TCJA regarding the suspension of the deduction for moving expenses, except for members of the Armed Forces on active duty. Non-military taxpayers prepare federal Form 3903, Moving Expenses, using California amounts.

A taxpayer may be classified as an independent contractor for federal purposes and as an employee for California purposes. The deduction for self-employment tax is not allowed to an employee.

Federal law allows a deduction for medical coverage of your adult children. For California, adult children who provide more than one-half of their own financial support in the year are not qualified for the deduction.

Employees and independent contractors – A taxpayer may be classified as an independent contractor for federal purposes and as an employee for California purposes. The self-employed health insurance deduction is not allowed to an employee.

Under federal law (TCJA), alimony and separate maintenance payments are not deductible by the payor spouse, if made under any divorce or separation agreement executed after December 31, 2018, or executed on or before December 31, 2018, and modified after that date (if the modification expressly provides that the amendments apply). California does not conform.

If the federal depreciation deduction is more than the California depreciation deduction, enter the difference on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 11, column B. If the federal depreciation deduction is less than the California depreciation, enter the difference in column C.

Enter the amount of living expenses on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 11, column C.

If you have excess moving expense reimbursements, enter the amount of moving expenses from line 3 of federal Form 3903 on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 13, column C. If your reimbursements are less than your moving expenses, enter the amount of moving expenses from line 5 of federal Form 3903 on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 13, column C.

If the taxpayer is classified as an employee for California purposes, enter the amount included for federal on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 14, column B.

Enter the adult child’s portion of the medical insurance cost on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 16, column B.

If for California purposes, the taxpayer is classified as an employee, enter the amount included for federal, on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 16, column B. Note: A taxpayer classified as an employee for California purposes who makes an adjustment on the Schedule CA may be able to claim this amount as a deduction for medical and dental expenses. For more information, see instructions in Itemized Deductions.

Enter the amount of alimony and separate maintenance paid not deducted on your federal tax return on Schedule CA (540), Part I, Section C or Schedule CA (540NR), Part II, Section C,

line 18a, column C.

Alimony paid by a nonresident alien

IRA deduction

Student loan interest deduction

Tuition and fees deduction

Alimony expense paid by a nonresident alien that was not deducted on the federal return is a deduction on the California return.

SECURE Act repeal of maximum age 70½ – The SECURE Act repealed the maximum age of 70½ for traditional IRA contributions. California law does not conform to this federal provision.

California conforms to federal law regarding student loan interest deduction except for non California domiciled military taxpayers and a spouse/RDP of a non California domiciled military taxpayer residing in a community property state.

Federal law allows a deduction from income up to $4,000 for qualified higher education expenses paid. California has not conformed.

Enter the amount not included on your federal return on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 18a, column C.

If you report an IRA deduction on Schedule

CA (540), Part I or Schedule CA (540NR), Part II, Section C, line 19, column A at age 70½ or older, include that amount deducted for federal in the total you enter on Section C, line 22, column B. Enter the amount and write “IRA AGE” on the dotted line next to line 22.

Enter the amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 20, column C.

Enter the amount on Schedule CA (540), Part I or Schedule CA (540NR), Part II, line 21, column B.

Itemized Deductions

Medical and dental expenses

1)Medical expenses paid for with Health Saving Account (HSA) distributions

2)Expenses for employees and independent contractors

Taxes

Federal law does not allow a deduction for qualified medical expenses paid for with HSA funds. California does not conform.

Taxpayers classified as independent contractors for federal purposes and classified as employees for California purposes may claim the amount of self-employed health insurance deduction for federal purposes as a medical and dental expense deduction for California purposes.

Enter the amount of qualified medical expenses paid for with HSA funds that exceed 7.5% of federal AGI that were not deducted for federal on Schedule CA (540), Part II or Schedule

CA (540NR), Part III, line 4, column C.

Combine the amount paid for self-employed health insurance with other medical and dental expenses (as applicable). The total amount of the medical and dental expenses is subject to the 7.5% of federal AGI threshold. Enter the difference between the medical and dental expense deduction allowed for California and federal on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 4, column C.

Interest

1) Home mortgage interest

2) Mortgage interest credit

The TCJA limited the deduction for state and local taxes to $10,000 ($5,000 if married filing separately) for the aggregate of state and local income taxes and property taxes. California does not conform.

Federal law allows a deduction for income taxes paid to a foreign country and generation skipping tax (GST) imposed on certain income distributions. California does not conform.

The federal law suspended the deduction for foreign property taxes. California does not conform.

The TCJA limited the mortgage interest deduction acquisition debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California does not conform.

Federal law suspended the deduction on up to $100,000

($50,000 for married filing separately) for interest on home equity indebtedness, unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures

the loan. California does not conform.

If you reduced your federal mortgage interest deduction by the amount of your interest credit (from federal Form 8396, Mortgage Interest Credit), increase your California itemized deductions by the same amount.

If your deduction was limited under federal law, enter an adjustment on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 5e, column C for the amount over the federal limit.

Enter the amount deducted for federal on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 6, column B.

Enter the amount of foreign property taxes not deducted for federal on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 6, column C.

If your deduction was limited under federal law, enter an adjustment on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 8, column C for the amount over the federal limit.

If your deduction was limited under the federal law, enter an adjustment on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 8, column C for the amount over the federal limit.

Enter the amount of your federal mortgage interest credit on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 8, column C.

Enter the difference on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 11 or

line 12, column B.

Enter the amount allowed using California law on Schedule CA (540), Part II or Schedule

CA (540NR), Part III, line 11, column C.

Enter the amount on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 11, column C.

If you deducted a charitable contribution amount for the College Access Tax Credit Fund on your federal Schedule A (Form 1040), Itemized Deductions, and are claiming the College Access Tax Credit on your Form 540 or Form 540NR, enter the amount used to calculate the College Access Tax Credit on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 11, column B.

Enter the amount of this deduction on Schedule CA (540), Part II, or Schedule CA (540NR), Part III, line 11 or line 12, column B.

If deducting a prior year charitable contribution carryover, and the California carryover is larger than the federal carryover, enter the additional amount on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 13, column C.

7)Carryover deduction of appreciated stock contributed to a private foundation prior to January 1, 2002

Casualty and theft losses

There may be a difference in the valuation of your California charitable contribution of appreciated stock than allowed for federal.

The TCJA suspended the personal casualty and theft loss deduction, with exception for personal casualty gains. Federal allows a deduction for personal casualty and theft loss incurred in a federally declared disaster. California does not conform.

California allows personal casualty and theft loss and disaster loss deductions. If you have personal casualty and theft loss and/or disaster loss, complete another federal Form 4684, Casualties and Thefts, using California amounts.

If deducting a charitable contribution carryover of appreciated stock donated to a private operating foundation prior to January 1, 2002, and the fair market value allowed for federal purposes

is larger than the basis allowed for California purposes, enter the difference on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 13, column B.

Enter the difference between the federal and California amount on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 15, column B or column C.

Job expenses and certain

Compare federal Form 2106, line 10 and the form completed using California amounts. Enter the difference between the federal and California amount on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 16, column B or column C.

Enter the amount of California lottery losses included on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 16, column A on line 16, column B.

Enter the amount of federal estate tax included on Schedule CA (540), Part II or Schedule

CA (540NR), Part III, line 16, column A on line 16, column B.

If you claimed a credit for the repayment on your federal tax return and are deducting the repayment for California, enter the allowable deduction on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 16, column C. If you deducted the repayment on your federal tax return and are taking a credit for California, enter the amount of the federal deduction

on Schedule CA (540), Part II or Schedule

CA (540NR), Part III, line 16, column B. Social security benefits are not taxable by California and the repayment would not qualify for claim of right deduction or credit. If you deducted the repayment of Social Security benefits on your federal tax return, enter the amount of the federal deduction on line 16, column B.

To help you determine whether to take a credit or deduction, see the Repayment section of federal Publication 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations. If you choose to take the credit instead of the deduction for California, add the credit amount on line 78, the total payment line, of the Form 540 or on line 88, of the Form 540NR. To the left of the total, write “IRC 1341” and the amount of the credit.

Prepare federal Form 2106 reflecting your employee business expense using California amounts (i.e. following California law). Include your entertainment expenses, if any, on line 5 of federal Form 2106 for California purposes. Enter the amount from line 10 of federal Form 2106 on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 19.

Enter the total amount you paid to produce or collect taxable income and manage

or protect property held for earning income on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 21. List the type of each expense next to line 21 and enter the total of these expenses on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 21. If additional space is needed, attach a statement showing the type and amount of each expense.

Examples of expenses to include on Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 21 are:

Certain legal and accounting fees. Custodial fees (for example, trust account). Casualty and theft losses of property used

in performing services as an employee from federal Form 4684, lines 32 and 38b, or federal Form 4797, Sale of Business Property, line 18a.

Deduction for repayment of amounts under a claim of right if $3,000 or less.

Excess deduction on termination of an estate or trust.

See Schedule CA (540), Part II or Schedule CA (540NR), Part III, line 27, for more information.