California capital loss carryover, multiple years of not filing in CA

[gjmibbs]

I have an outstanding capital loss carryover in California but have not filed for several years since I was not a resident and had no income from the state. Prior to leaving I had been deducting from the carryover amount every year when I filed as appropriate. I have a federal capital loss carryover, initially of the same amount, that I've continued to draw down on since leaving California.

This year, I had some income from CA from the sale of assets in-state and would like to continue using the state-level carryover in this year's state filing, however, I'm unsure what amount to use. Should I (a) resume using the carryover amount from the last time I filed in CA, (b) treat the carryover as if I've been using it yearly and deduct $3000 for every year not filed, or (c) use the up-to-date carryover amount from my federal filings (which is less than option (b) due to the sale of some assets. Hoping there's not an option (d) where I have to file amended returns with CA.

[MonikaK1]

You don't need to file California returns for the intervening years, but you do need to recalculate the capital loss carryover as if you lived in California. See the 2024 California FTB Instructions for Schedule D:

Line 6 – California capital loss carryover from 2023

If you were a resident of California for all prior years, enter your California capital loss carryover from 2023. However, if you were a nonresident of California during any taxable year that generated a portion of your 2023 capital loss carryover, recalculate your 2023 capital loss carryover as if you resided in California for all prior years...Enter your California capital loss carryover amount from 2023 on line 6.

See also the page on part-year residents and nonresidents (the link to Pub 1100 is no longer available).

Near the end of the instructions is the "worksheet" for capital loss carryovers:

California Capital Loss Carryover Worksheet

1. Enter loss from Schedule D (540), line 11, as a positive number.
2. Enter amount from Form 540, line 17.
3. Enter amount from Form 540, line 18.
4. Subtract line 3 from line 2. If less than zero, enter as a negative number.
5. Combine line 1 and line 4. If less than zero, enter -0-
6. Enter loss from Schedule D (540), line 8, as a positive number.
7. Enter the smaller of line 1 or line 5.
8. Subtract line 7 from line 6. This is your capital loss carryover to 2025.

When you prepare the California return in TurboTax, at the screen "Here's the income that California treats differently", under Investments, you can click on the item "Capital Loss Carryover from Last Year" and make any needed adjustments.

[gjmibbs]

Thanks for your help. I had seen this passage online and my interpretation was similar to what you suggest: that in my case the amount should be last California capital gains tax reported less any of the gains that I would have offset had I been a resident. 

Since my California capital loss carryover was the same as my federal one the last time I filed and since I've continued to draw down on my federal capital loss carryover during this time, the two amounts (federal and CA loss carryover) should be equivalent -- is that correct?

[JotikaT2 · Accepted solution]

That is correct.  California follows the same $3,000 (or $1,500 if filing separately) capital loss limit each year and conforms to the federal treatment.

[gjmibbs]

Much appreciated. One final question -- when entering the calculation for the capital loss carryover for resident versus non-resident all prior years, my understanding is that I can use the same amount for both (since the stocks were sold while I was in California, the 'source' of the loss is within California). Is that correct?

Whereas if the stocks were sold when I was outside of California, the nonresident all prior years carryover would be zero.

[JotikaT2]

That would be correct.  You can only report the capital loss carryovers that were generated when you were a California resident.