How to report dividends earned in 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. California residents still have to pay taxes on dividends and capital gain for their RRSP and LIRA accounts in California tax return (but not in federal tax return). 

How can I enter my dividends and capital gain 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

[LinaJ2020 · Accepted solution]

To enter the tax-exempt interest under the California section, here are the steps:

In TurboTax online,

• After sign back into the account, select Pick up where you left off
• To your left, select State
• On-screen, Status of your state returns, under California, select Continue
• Follow prompts
• On-screen, Here's the income that California handles differently
• Under Investments / Interest and Dividends Adjustment, select Start
• Follow prompts to screen Any Other Adjustments, enter your adjustment

[holapi]

Thank you very much for your help LinaJ2020.

What about capital gain/loss as a result of selling some stocks under RRSP and IRA during 2019? (No withdraw, but just sold some existing ones and bought some new ones). Should capital gain/loss also be reported under Investments / Interest and Dividends Adjustment?

Thanks again,

Shirley

[DianeC958]

No, when you sell stocks, they need to be reported in the Investment Section of Turbo Tax, Stocks, Mutual Funds, Bonds, Other.

You can still report them in this section even if you did not receive a 1099-B for the sales.

When the program asks if you receive a 1099-B for the sales you answer No.  Then the program will bring up a list of possible items you sold.  Pick Stock Sales, about in the middle of the page,  and report the information for the stock you sold.

You can report more than one stock sale by going through this process as many times as needed.

[holapi]

Thank you DianeC958!

But by reporting capital gain/loss as if I received 1099-B, will I be taxed at both Federal level and State level? Based on my understanding, RRSP and LIRA are tax-deferred at Federal level, but not at State level, so I should report the capital gain/loss in such a way that I get taxed only by California, but not Federal. Any suggestions on how I can report it using TurboTax?

Thanks again for your help!

Best regards,

Shirley

[DianeC958]

Yes, if you report the stock sales as I previously suggested you would be taxed for both Federal and State.

When stock is sold as part of a retirement account it does not need to be reported on the current tax return for the Federal.  

You are responsible for including your interest (line 8), dividends (line 9) and capital gains (line 12) of Schedule CA. They will ultimately appear in Column C for additions to income. If you have a capital loss, the loss would be reported in Column B of line 12.

If you are using TurboTax Online, I would suggest that you move your return to the Desktop version of TurboTax where you can switch the the forms mode (by clicking in the upper right hand corner of the program) and add the information for your California return more easily.

You can purchase the Desktop version of TurboTax and transfer the information for the online version to the Desktop version by going to Tax Tools (on the left hand side), Tools, Download my 2019 tax return.

Then when you open the Desktop version of TurboTax you can upload the information by click on Find A Tax File.  The program is looking for the downloaded tax file from the online version of TurboTax.

@holapi 

[holapi]

Thank you DianeC958! Yes, I’m using desktop version of TurboTax Deluxe.

[bigben3]

I have been doing this for several years on Turbo Tax Deluxe.   I DO NOT enter my RRSP and LIRA dividends and capital gains on the federal form, but do in the California form.  There seems to be some minor change for 2019 compared with 2018 in Schedule CA, where you enter the adjustments for these additional income items.

I usually look at FTB Publ. 1001, page 6, published every year, which gives instructions for Canadian RRSP: "Under both federal and California law, the RRSP does not qualify as an Individual Retirement Account (IRA) and does not receive IRA treatment. The federal treaty that allows taxpayers to elect to defer taxation on their RRSP earnings until the time of distribution does not apply for California income tax purposes. California residents must include their RRSP earnings in their taxable income in the year earned."

WHAT TO DO IN CALIFORNIA:

"Enter on Schedule CA (540), Part I, Section A or Schedule CA (540NR), Part II, Section A, line 2, line 3, or line 6, column C, the earnings from the RRSP."

In the past, there was no Section A in the instructions.  But this year, Capital Gains has been moved to Section A of the Form (used to be in Section B), so it makes sense.  I enter Dividends from RRSP and LIRA in line 3 of the Section A and Capital Gains in Lines of Schedule A, both as Additions to income in Column C.

I usually enter this information direct on the Form (Schedule CA) in Turbo Tax, because the Step-by-Step interview does not account for it.  If you do the Step by Step, you will have to add it as Other in Section B, then describing what it is in the dialogue box.  This will not be following the new instruction for 2019 to enter it in Section A.

I hope this helps.

[ca85280]

I use TurboTax Deluxe and in the 2018 version, "Canadian RRSP Earnings" appears under California - State Taxes - "Here's the income that California handles differently." Not so for the 2019 version of TurboTax Deluxe, for which you have to scroll down on the same page to the Investments - Canadian RRSP Earnings. Click "Start" or "Revisit" and you'll see the same "Enter RRSP and Dividend Income" screen as when you click on "Canadian RRSP Earnings" in the 2018 version. I hope this helps.

[CG89]

Hi @bigben3 ,

you said you have been doing this for several years so I thought i could ask you my question regarding RRSP,

On my RRSP , there is a beginning market value and ending market value. Lets say the difference is 500$ variation over the year.

However , below in my statement i see Capital Gain $ 36.14 and other revenues distributed $16.29

My question is , do I need to declare 500$ revenue ( difference in market value) , or only GC 36.14 and Other revenuses 16.29 ... i would really appreciate your feedback as Its been hard to find my exact answer online 🙂

thank you

[RobertB4444]

You'll declare the $36.14 in capital gains and the $16.29 in revenues distributed.

The $500 increase in market value is unrealized until you sell it.  SO it's not taxable til then.

@CG89