If you entered a K1 in your federal return, there will be questions that will generate when you begin your California state Return. As you navigate through your state return:

1. You will reach an entry that is entitled Partnership Schedule K-1 Summary. Select edit next to the K1. There will be some preliminary questions to enter.
2. Then go to Partnership K-1 Adjustments. Continue past the first page, to go to the second page in the adjustments screen.
3. In the second page, scroll to the section where it says credits and there will be a entry to make that says 15f-Form 3804-CR Pass-Through Entity Elective Tax Credit

The numbering was slightly different, but this got me to the right place. Thank you so much!! \o/

Thanks! You are the only one I found that was able to find this for me!

Question, is the number in that box the total amount of PTET you paid, or the amount you are claiming? For example, if the PTET you paid through the partnership was $30000, but your total taxes was only $20000, which number do you put in the box so the remaining credit gets carried forward 5 years?

Thank you!

But where is the Form 3804 found for TurboTax Business?  Your answer only discussed Form 3804-CR entry in regular TurboTax for individuals.

@TaxCat1

You can trigger the creation of Form 3804 (and related worksheet) in TurboTax Business using Forms mode.

1. Click Forms in the TurboTax header.
2. Go to the Information Wks under California Partnership.
3. Check the box under Part II >> Form 3804 Pass-Through Entity Elective Tax.
4. On the Sch K-1 Wks in the California return, check the box at the bottom of each partner to report the partner's consent for the PTE elective tax.
5. Return to the Information Wks and click "QuickZoom" beside either Form 3804 or 3804 Worksheet to review the calculations.
6. Be sure to address any form errors (red exclamation marks) before leaving Forms.

Thank you.  That was the first solution I received (and I called TT twice).

How come the software is not adding the pass through entity tax to California Form 100S, Line 7, Other Additions? 

That is necessary so that the 9.3% pass through entity tax is calculated on income before the pass through entity tax is deducted.   

In other words, Schedule K-1 (Form 100S), Column C, should add back the pass through entity tax.

I did that which got the form 3804 filled. But the PTE credit does not seem to flow to california 100s page 6 line 13 as other credit. It also does not flow to california K1 line 13d as other credit. Am I doing it wrong?

@Lillee mine is not flowing to 13(d) of K-1 either.   

Instructions to K-1 say:

"Pass-Through Entity (PTE) Elective Tax
Credit – The PTE Elective Tax Credit is not a passthrough
item, but will be reported on line 13d.
For more information, get form FTB 3804-CR,
Pass-Through Entity Elective Tax Credit."

So maybe we should add that manually to 13(d) of K-1.  And maybe the same for 100S, Side 6, Line 13(d).

You will also need to go into the Forms mode and manually add that PTE tax amount to Line 35 (Paid with From 3893) , otherwise, that amount will not get reported properly in the paperwork

This issue has been identified by our tech support and will be addressed in a future update. We don't know when that update will be released. But having the focus of the tech team is a positive step toward resolving the issue. If we see a support article released with more information, we'll post that link here.

In the meantime, here is the complete work-around. You will need to manually enter information in Forms Mode (icon in the TurboTax header) to both allocate and pay PTE tax. 

1. On the California Information Worksheet, check the box just above Part VI "Form 3804 Pass-Through Entity Elective Tax" and use the QuickZoom link to open Form 3804.
2. On Form 3804, check the box for identification number you wish to use (typically FEIN). Note the total tax on Line 3.
3. Open Form 3893 (PTE) and check the box to activate the form. Enter the total tax to be paid from Form 3804 Line 3 to the bottom of Form 3893.
4. Open Sch K-1 Wks and check the box for each partner to indicate consent to use Form 3804.
5. Open Form 100S p4-6 and scroll down to Credits Line 13d. Enter a description for the PTE Tax Credit from Form 3804 and the total amount in the middle column. This step will allocate the tax credit to all Schedules K-1.
6. Review each California Schedule K-1 Line 13d to confirm the allocated amount matches Form 3804. The supplemental information is presented under Line 17.

Form 3804-CR will need to be mailed with any payment due, but is not available in TurboTax Business. You can obtain a copy here: Pass-Through Entity Elective Tax Credit 2021 3804-CR

California pass-through entity elective tax credit and TMT: Urgent fix needed by turbotax!

I agree with @roboyang that this is an urgent matter that should be addressed as soon as possible.

@PatriciaV , you have given helpful answers in the past.  Any solutions for this one?

@roboyang , let me know if you find a work-around meanwhile.

I noticed this same issue this morning.  Yes, it's a major problem for affected taxpayers that TurboTax needs to address.

For me, the credit (as inappropriately limited by TurboTax) appears on line 43 of my Form 540.  It seems to me that a simple workaround would be to override the line 43 amount generated by TurboTax and replace it with the proper credit amount.

Of course, it would be better not to have to override anything, but this is a potential solution if TurboTax hasn't fixed the problem by the time of filing.

@TaxCat1 @roboyang 

Further to the above, I just got off a 52 minute call with TurboTax's customer support line [phone number removed]) about this.

The person I spoke to was a front line customer support line guy, but he seemed to understand the issue and checked up the food chain to investigate the issue.  He said that as best they can tell this is a new issue and there is not currently an update in progress that addresses it -- given that, I am not holding out hope for an update before April 15.

The suggestion that was offered was to file the return as TurboTax prepares it and to amend the return after an update is generated to address the issue.  That's obviously less than ideal -- who knows when the update will be generated, it's a pain to amend a return, and California holds onto the amount of the credit that was limited until an amended return is filed.  Based on this, overriding the line 43 amount on Form 540 seems the best option assuming a file date of no later than April 15.

The representative I spoke with gave me a different number for a help line [phone number removed]) where TurboTax users can submit complaints about the way TurboTax handles certain issues.  I will submit a complaint and suggest that other affected TurboTax users do too -- the more complaints they receive the more likely they will be to have their software development team generate an update to address this issue (which may not get attention in the normal course since it is a California-specific issue that, while significant to those affected, only affects a small slice of California taxpayers).

The help line phone number was auto-removed from my reply, so I will try a different way.

Eight Eight Eight, Seven Seven Seven, Three Zero Six Six. 

Some of the posters talked about overriding Line 43 of CA Form 540, but doesn't Schedule P and Form 3804-CR also need revising to reflect that the credit can reduce tentative minimum tax (TMT)?  I believe yes.

Yes, Schedule P and Form 3804-CR need to be updated by TurboTax so I don't think simply overriding Line 43 on CA From 540 will work.  Also, to the extent it is relevant, I believe California also changed the credit ordering rules for 2021 in a way that will impact the other state tax credit.  I think there are too many changes for a simple fix and think the best course of action is to wait to file until TurboTax has updated its forms, which probably means needing to file California on extension.

Hi Patricia,

Very much appreciate your ongoing attention on this site. 🙂

The above directions you provided are for an S Corp. Can you provide similar for a partnership form 1065 k-1?

Steps 1-4 would be the same, but Steps 5-6 would differ.

Thank you!

Cam

@larner

Here are the steps for both an LLC and a Partnership Form 1065 (they are different forms in California).

LLC:

1. On the California Information Worksheet, check the box just above Part III "Form 3804 Pass-Through Entity Elective Tax" and use the QuickZoom link to open Form 3804.
2. On Form 3804, check the box for identification number you wish to use (typically FEIN). Note the total tax on Line 3.
3. Open Form 3893 (PTE) and check the box to activate the form. Enter the total tax to be paid from Form 3804 Line 3 to the bottom of Form 3893.
4. Open Sch K-1 Wks and check the box for each partner to indicate consent to use Form 3804.
5. Open Form 568 p5-6 and scroll down to Credits Line 15f. Enter a description for the PTE Tax Credit from Form 3804 and the total amount in the middle column. This step will allocate the tax credit to all Schedules K-1.
6. Review each California Schedule K-1 Line 15f to confirm the allocated amount matches Form 3804. The supplemental information is presented under Line 22.

Partnership:

1. On the California Information Worksheet, check the box just above Part III "Form 3804 Pass-Through Entity Elective Tax" and use the QuickZoom link to open Form 3804.
2. On Form 3804, check the box for identification number you wish to use (typically FEIN). Note the total tax on Line 3.
3. Open Form 3893 (PTE) and check the box to activate the form. Enter the total tax to be paid from Form 3804 Line 3 to the bottom of Form 3893.
4. Open Sch K-1 Wks and check the box for each partner to indicate consent to use Form 3804.
5. Open Form 565 p5-6 and scroll down to Credits Line 15f. Enter a description for the PTE Tax Credit from Form 3804 and the total amount in the middle column. This step will allocate the tax credit to all Schedules K-1.
6. Review each California Schedule K-1 Line 15f to confirm the allocated amount matches Form 3804. The supplemental information is presented under Line 22.

Patricia,

As always, you came through like a champ!! 😉

Following your instructions for Pship, I did run into the following issues for which I'd like your help.

1) PTE Tax credit calculation error on Form 3804

According to the FTB, the calc of the tax credit amount "...for a partnership this will be the sum of lines 1-11 minus the sum of lines 12 and 13 on the K-1 (565/568)."

However, Form and Wks for 3804 derive item "b", the "Elective tax credit amount", without subtracting line 12 and 13.  In my case, several partners have a credit on line13e (for sec 754 depreciation) which is not included on the TT calc. In fact, Form 3804 line "a" reports a total for each partner that reflects "the sum of lines 1-11" from their k-1, but does reflect subtraction of "the sum of lines 12 and 13". :(

2) Form 3804 Wks Error: "First Name must be entered for electronic filing".

One of my partners is a Revocable Trust, entity type "R" on the Sch K-1 Wks.  Form 3804 Wks auto-populates the trust name from the k-1 Wks into the "Trust Name" field, leaving First and Last name blank, rendering the above error.

When I enter a First and Last Name, I receive another error, "First Name or Last Name should not be entered for electronic filing, if Trustname is entered." :0 I am unable to remove Trust Name. So, I'm stuck in a circular error loop. :(

Your helpful response and advice is greatly appreciated!

Cam

@larner

I am unable to reproduce the experiences you described. Sometimes these items can be resolved by manually updating the software (TurboTax Business menu >> Online >> Check for Updates).

Here are my test results:

1) Adding Section 754 Depreciation to Form 1065 p405 Line 13(d)C, Code W, adds an amount to Line 13 of the Federal K-1s. The total qualified net income on Form 3804 Wks line b does include this additional deduction (line 1-11 minus 12 & 13). The deduction also appears on CA K-1 Line 13e as expected.

2) Designating one member as RT on Sch K-1 Wks moves the member name to the Trust Name field of Form 3804 Wks with no form errors.

If you have time, would like us to review your return, and would be willing to send us a “diagnostic” file that has your “numbers” but not your personal information, here are the instructions: 

Please go to Online in the TurboTax header. 

1. Choose Send Tax File to Agent.
2. You will see a message explaining what the diagnostic copy is.  Click Send on this screen and wait for the Token number to appear. 
3. Reply to this thread with your Token number.  

This diagnostic copy (numbers only; no personal info) of your tax file will allow us to see the same experience you are having. If we are able to determine the cause, we'll reply here and provide you with a resolution. This may take a few days.

Patricia,

Concerning "1) Adding Section 754 Depreciation to Form 1065 p405 Line 13(d)C, Code W, adds an amount to Line 13 of the Federal K-1s.", I just want to point out that according to the IRS, Section 754 Depreciation under sec 743b is supposed to be reported under Code "V", not "W". And, that is how I reported it.

From https://www.irs.gov/forms-pubs/clarifications-for-disregarded-entity-reporting-and-section-743b-reporting

"The partnership would allocate depreciation expense related to the section 743(b) adjustment of $1,600 depreciation for Partner A and would report that expense on Schedule K-1 (Form 1065), line 13, code V."

I will also note that starting in 2021, TTB does provide a new checkbox to facilitate "743b" adjustments, which if selected, does allocate the adj to Code V. However, it does not provide the same option at the state level.

Thus, I suspect that TTB calculated 3804 QNI and PTE tax if one checks the 754 box, but not the 743b box.

However, having updated TTB today, the 3804 Wks is now making the correct calculation and includes the line 13 Code V deduction! So all good on that count.  

Just FYI, looks like Turbotax fixed this issue on my desktop version. Yay!

@larner @roboyang
Thank you for the clarifications and acknowledging the update was successfully implemented.