California capital gains: why the subtraction?

[schwarcz]

Turbo Tax 2020 takes all my cap gains from Federal Sched D and makes them a subtraction on the California Schedule CA.  As a result, by default, my CA return would pay no taxes on the capital gains.  This seems just wrong and a Turbo Tax bug.  My CPA says there is no reason that the Federal cap gains would not be taxable.

Turbo Tax, can you please explain the behavior?

[GeorgeDenseff]

California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists.

[schwarcz]

Thanks for the response.  Perhaps my posting was not clear enough.

Fed cap gains is taxable in California but TT makes the Fed cap gains a California subtraction (see Sched CA(540) line 7 column B Subtractions.  I believe this excludes the amount of cap gains from California taxable income and leads to an underpayment of taxes.

Am I incorrect here?

[GeorgeDenseff]

I cannot see your return but the capital gains should be added to your other income and taxed at the same rate.  If it is not being taxed at all, there may be a problem with your software.  Customer support will be able to pull a copy of your return and analyze it.

[GeorgeDenseff]

If you are working on the new desktop 2021 software, be aware that it will have a lot of issues during the next few months until it is completely updated and working correctly.  These issues happen every year and it takes a while to get them ironed out.

[schwarcz]

Thanks.  I am using the 2020 software 

[schwarcz]

How do I contact customer support?  I have verified that the cap gains subtraction are being deducted from Fed adjusted gross income and thus reducing my California taxable income (Form 540, line 14)

[GeorgeDenseff]

What is the TurboTax phone number? (intuit.com)

[TomD8]

Did you have a capital loss carryover from the previous year?

[schwarcz]

No capital loss carry over from prior year.

[schwarcz]

Thanks, I talked to three different support reps.  None had an explanation for why the full amount of my cap gains was shows as a subtraction.  The third rep finally said she would file a bug report.  I am not confident that she will.

[GeorgeDenseff]

Thanks for your help with reporting this and helping to get it resolved for everyone.

[fanfare]

One general solution for problems like this is to delete the CA state tax return, then add it back and do over from scratch.

[schwarcz]

Well in this case, it didn't work.  I deleted the state forms and the problem persists.  I still maintain that this is a fundamental bug and would hate to see it show up in the 2021 version.

[ca_tax_filer_123]

@schwarcz Did you end up getting this resolved? Seeing the same issue and am afraid of substantially underreporting CA state income.