Passive activity loss not allowed on California return. Shows as an adjustment on form 540

[brianblb]

I am a real estate professional and some of my losses are allowed on my California return but some are not.

[TerryA]

California doesn't conform to federal's real estate professional provision, so all rentals are passive. You may be eligible for the special allowance if you have Active Participation. See the Calif Form 3801 Part II.

[simba]

for real estate profession Turbo tax did not allow losses and were treated passive losses and carried forward for California. This year ,2019  Turbotax (Home and Business version)  treats it differently and has given all the past and current losses as deduction  for state (california). I think there is a bug in programming.

[KrisD15]

If you were using Schedule E, the losses would not be carried. 

If now using Schedule C, they would. 

[simba]

why it should not be carried for  Schedule E?

[DaveF1006]

According to the following link from the State of California, "the net income (loss) for each passive activity will be carried back to the California form or schedule on which it is usually reported. ... For example, if you have both passive and nonpassive Schedule E activities, you will include all of them on your California Adjustment Worksheet, Schedule E Activities. "   The California Adjustment Worksheet is the only place where this is reported rather than on the Schedule E itself, according to this link.

[taxes99]

On the same topic, am CA resident, and for Tax year 2018, I had a K1 for rental property in KS showing a loss of $3212, and with previous year losses, amounted to $3865. For federal tax, 2019, K1 income of $2145 was negated by previous year's loss, and no additional income was added to Federal AGI. However, for CA and KS (non resident), it seems that the loss does not carry over and income was adjusted to include full K1 income. Wouldn't loss carry over for states too? 

I modified CA manually through TurboTax question about K1 "Passive loss carryovers" and that worked, except, it's showing Regular Tax, and AMT box. What is the meaning of this, and how to fill it in properly?

On the other hand, TurboTax is not asking me anything about this for KS, so am not sure if I am allowed to adjust it. It would seem reasonable.

[Tax2019Pay]

Dear Experts:

Does California allow K-1 (565) passive activity losses reported in box 2's be carried forward year after year until they can be used to offset passive activity gains?

If so, where should be the prior years' suspended or disallowed cumulative passive activity losses be reported for nonresident return filers?   Is it on 540NR, CA (540NR), schedule D (540NR) or any other form?

Thanks

[HopeS]

Yes, California allows passive loss carryover. You would enter the carryover in the rental section for example if these are related to rental property. Once entered the losses will transfer to the State.

The Forms to use depends on what generated the passive activity losses.

In general, in determining California taxable income, nonresidents compute prior year items by taking into account only those items with a California source, subject to any limitations provided by law. For example, passive losses are limited to passive gains (IRC Section 469 and R&TC Sections 18551 and 17561). Make this computation whether you were always a nonresident or a former resident who moved out of California.

Nonresident and Part-Year Resident Instructions

Nonresidents and part-year residents must complete form FTB 3801 and the worksheets twice:

• First, to determine the amounts to enter on Schedule CA (540NR), columns B and C.
• Second, to determine the amounts to enter on Schedule CA (540NR), column E.

For additional information please review the links below as well:

Passive Activity Loss Limitations

See how to enter Turbotax

Entering passive activity loss carryover

@Tax2019Pay 

[phildonnia]

Thanks.  I was able to enter allowed suspended passive losses for a partnership activity by going to the California adjustments for K-1.  

Seems like the default should be to include whatever was included on the Federal, and then let you adjust it if necessary.  Instead, I have to enter the same information again for California in order for it not to be adjusted.  If not a bug, then a confusing design flaw.