How to report capital gain/loss from Canadian RRSP and LIRA using TurboTax in California?

[holapi]

Hi,

I live in California. Due to tax treaty between US and Canada, the tax is deferred at the “federal” level for Canadian tax-deferred accounts like RRSP and LIRA. However, this is not the case in California. How can I enter my ‘capital gain/loss’ so that I get taxed only at California return but not Federal return using TurboTax Deluxe?

Thanks in advance for your help!

Best regards,

Shirley

[KurtL1 · Accepted solution]

You would enter the amounts on the Schedule CA 540 - California Adjustments — Residents. You would add the capital gain / loss on the form. On the state return you will make the entry in the software in the California adjustment section

[holapi]

Thank you KurtL1! 

[bntax_2023]

Canadian RRSP Capital gain/loss will have to be manually input in sched D (540), this will flow into sched CA. 

However, I have an additional question .  The capital gain/loss for the year would be the RELALIZED gain/loss ( resulting from trading equities within the RRSP accounts) or the total UNREALIZED capital gain due to the appreciation in value of the equities in the account for that year.  I have researched everywhere and the answer is no where to be found.

If someone has this experience , please advise

[DaveF1006]

It would be Realized gain/loss.

@bntax_2023 

[bntax_2023]

I could not find any documents to back up this info, not from FTB web, Turbotax program, forums or anywhere. Since California does not tax RRSP distribution (considered as invested capital like a saving account, this includes any increase in value, after taxed UNREALIZED GAINS which stay in the account for future distribution)It seems that they would want to tax this increase in value (UNREALIZED) in the year it occurs so that they will not tax it when distributed (withdrawn) .  Otherwise,how do they know which capital gain has been taxed and which is not .

Does anybody have any thought or document to clarify this .  Thank You

[bntax_2023]

In addition to my reply 50 minutes ago I found this

In addition to my previous reply

I am not sure if this is where we should report the UNDISTRIBUTED CAPITAL GAINS ( Unrealized), and if this will flow to schedule CA (540)

After Reading all the posts in Turbotax forums, talking to several tax experts of Turbotax,  It seems that Turbotax is incapable to handle this issue of RRSP reporting in California.  It is disappointing to see one of the largest Tax software company in the US unable to help the clients

[DaveF1006 · Accepted solution]

California is a state that does not abide by federal tax treaties. According to the California State Franchise Tax Board (FTB), your RRSP is…well…more like a savings account.  Translation – the income and capital gains are taxable in the year earned and not received. Now the dilemma is how to report it.

You would need to report this directly on Form Schedule CA ADJ.  If you are using the online version of Turbo Tax, this will not work. You will need the software version. Once you recorded the unrealized capital gain  information, then this will flow to Sch CA (540R).  My Ca view does not contain the form as listed in your example above but you may try placing this amount in line 21B.  Just as long as it gets reported.  Meanwhile, here is a screenshot of my program and where i would list it if I had the same reporting requirement.

@bntax_2023 

[bntax_2023]

Thank You for the response . Below are my further questions on this issue

1. if you search for CA forms, you will find the form "Ca other income statement" , it is in my Turbotax 2023 PC program as shown on my previous post (I have removed the form for privacy reason)I attached the location of the form in the form search

2. I think line 2a in your example could be used to subtract the RRSP distribution as it is like a withdraw from a saving account and is not taxed by California

3. So I assume that you agreed with me that the UNREALIZED/UNDISTRIBUTED gains (increase in account value) have to be reported ? Not only the REALIZED gains in trading equities

4. If I have capital LOSS in lieu of gain, if we input in schedule CA this way, we will enter in column b subtraction or column c as a negative number ?

5. Should I enter the complete CAPITAL LOSS, or just the $3000 yearly loss limit and carryover the rest.  If I have to carry over the loss, how can I do it ?

Thank You for your investigation

[DaveF1006]

RRSP distributions are taxable in Ca so you would not be able to exclude the the income. If there are no distributions, all earnings within the account are taxable whether they be realized or unrealized gains even if you do not take a distribution.  California is rather harsh in its tax code.

if you have a capital loss recorded in your federal return, it should be automatically transferred to your Ca state return and the loss is  recorded as $3000 with the excess being reported as a carry over. 

[bntax_2023]

Please see FTB Tax News 2003 addressing the RRSP issue and also Turbotax guide that I found in the program

[rahul13]

Hello @bntax_2023 , what did you finally do? Did u took into account unrealized gains or realized gains when filing your taxes?

[srr]

The two documents are very useful; thanks.

For California:

MY CPA told me to report the realized earnings each year but not the unrealized gains for California .

When I take a distribution do i report the GAIN portion of the distribution and subtract the earnings I had declared to CA (ie FTB) in the past. According to the two PDS, RRSP  distributions are not taxed in CA - but  i assume that is if i had declared the unrealized gains each year.

For Federal

Q. Does Federal tax the whole distribution or only the gain portion of the distribution? Since i got no tax advantage from USA IRA when I contributed to RRSP in Canada shouldn't i be taxed only on the gain (as with traditional IRA)?

[MarilynG1]

Yes, you would be taxed on the entire distribution. Most IRA distributions are taxed in entirety also, even if a tax break was received initially for contributions. 

However, you can claim a Foreign Tax Credit for the tax you paid Canada on your retirement distribution.

Here's more info on Claiming the Foreign Tax Credit.

@srr