Worthless stock in CA return

[user17741472564]

I have $60k of worthless stock from a small business investment I am writing off.  I enter it Federal Return and it treates it properly, taking it against ordinary income. 

In my state CA taxes, this $60k is adjusted out completely, presumably because CA treates this loss differently, but it doesn't appear anywhere else in my taxes.  CA does allow me to write off worthless stock, but the program doesn't move it anywhere, it just eliminates it.   

It does this whether I select sec. 1242 loss or 1244, though it does change how things are calculated based on the $50k cap for adjustment to ordinary income with 1244 stock 

[DavidD66]

You won't see anything related to your capital gains/losses on your California tax return unless there is a difference between your California and federal capital gains and losses.  The starting point for calculating personal income tax on a California tax return is generally the Federal Adjusted Gross Income (AGI), which includes capital gains and allowed losses.  California Schedule D (540), California Capital Gain or Loss Adjustment is filed only if there is a difference between your California and federal capital gains and losses.  So if your loss is not being added back as an adjustment to your income on your California return then the loss is included due to it being reflected in your federal AGI.

[user17741472564]

Thanks for the reply - 

Understand what you're getting at, but then CA should leave AGI alone.  But it does not. 

On Sch CA Line 4, column C, it adds back the capital loss.  This amount is never subtracted anywhere else. 

When the final calculations are done on line 27, my CA AGI now has this capital loss rolled back into it and transfers to line 17. 

Either I need to be able to enter this back in manually (which scares me), or it's a programming glitch. The value is getting pulled out because of some tax rule (like limits on LTCG losses for CA) but not being transferred to the right category. 

[MonikaK1]

California Schedule CA starts with Federal Adjusted Gross Income and then shows additions and subtractions from that amount based on differences in California law. 

If your loss is being added back on the California Schedule CA, in the situation you described, it appears to be because California does not conform to federal law (IRC §1202) that allows for the exclusion of gain on certain Qualified Small Business Stock, meaning 100% of the gain on such stock is taxable in California.

See the California Instructions for Capital Gain or Loss Adjustment for more information.

@user17741472564 

[user17741472564]

Just to wrap it up - 

Turbo tax removes the worthless stock for the reasons listed.  CA does has limits on capital gains deductions that are different from Federal.  

There is a bug in the program in that when the amount is adjusted and the loss is added back to AGI for California, it should be moved to a Capital Loss on Schedule D.  While there is a limit, it does become a loss carry forward and can be used against future capital gains or limited against income.  But the program does not do that, so it has to be done manually.  Worked through a session with on-line Turbo Tax support so got some confirmation. 

Thanks for all the input.