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Category: California

California Itemized Deductions

Adoption-Related Expenses – If you deducted adoption-related expenses on your federal Schedule A (Form 1040) and are claiming the adoption cost credit for the same amounts on your Form 540, enter the amount of the adoption cost credit claimed as a negative number on Other adjustments to CA Itemized Deductions.

Mortgage Interest Credit – If you reduced your federal mortgage interest deduction by the amount of your mortgage interest credit (from federal Form 8396, Mortgage Interest Credit), increase your California itemized deductions by the same amount. Enter the amount of your federal mortgage interest credit as a positive number on Other adjustments to CA Itemized Deductions.

Nontaxable Income Expenses – If, on federal Schedule A (Form 1040), you claim expenses related to producing income taxed under federal law but not taxed by California, enter the amount as a negative number on Other adjustments to CA Itemized Deductions. You may claim expenses related to producing income taxed by California law but not taxed under federal law by entering the amount as a positive number on Other adjustments to CA Itemized Deductions.

Employee Business Expense – If you completed federal Form 2106, Employee Business Expense, or Form 2106-EZ, Unreimbursed Employee Business Expense, prepare a second set of forms reflecting your employee business expense using California amounts (i.e., following California law). Generally, California law conforms with federal law and no adjustment is needed. However, differences occur when: 1) Assets (requiring depreciation) were placed in service before 1/1/87. Figure the depreciation based on California law. 2) Federal employees were on temporary duty status. California does not conform to the federal provision that expanded temporary duties to include prosecution duties, in addition to investigative duties. Therefore, travel expenses paid or incurred in connection with temporary duty status (exceeding one year), involving the prosecution (or support of the prosecution) of a federal crime, should not be included in the California amount. Compare line 10 on the federal form and the form completed using California amounts. If the federal amount is larger, enter the difference as a negative number on Other adjustments to CA Itemized Deductions. If the California amount is larger, enter the difference as a positive number on Other adjustments to CA Itemized Deductions.

Investment Interest Expense – Your California deduction for investment interest expense may be different from your federal deduction. Use form FTB 3526, Investment Interest Expense Deduction, to figure the amount to enter on Other adjustments to CA Itemized Deductions.

Gambling Losses – California lottery losses are not deductible for California. Enter the amount of California lottery losses shown on federal Schedule A (Form 1040) as a negative number on Other adjustments to CA Itemized Deductions.

Federal Estate Tax – Federal estate tax paid on income in respect of a decedent is not deductible for California. Enter the amount of federal estate tax shown on federal Schedule A (Form 1040) as a negative number on Other adjustments to CA Itemized Deductions.

Generation Skipping Transfer Tax – Tax paid on generation skipping transfers is not deductible under California law. Enter the amount of expenses shown on federal Schedule A (Form 1040) as a negative number on Other adjustments to CA Itemized Deductions.

State Legislator’s Travel Expenses – Under California law, deductible travel expenses for state legislators include only those incurred while away from their place of residence overnight. Figure the difference between the amount allowed using federal law and the amount allowed using California law. Enter the difference as a negative number on Other adjustments to CA Itemized Deductions.

Charitable Qualified Contributions – Your California deduction may be different from your federal deduction. California limits the amount of your deduction to 50% of your federal adjusted gross income. Figure the difference between the amount allowed using federal law and the amount allowed using California law. Enter the difference as a negative number on Other adjustments to CA Itemized Deductions.

Charitable Contribution Carryover Deduction – If deducting a prior year charitable contribution carryover, and the California carryover is larger than the federal carryover, enter the additional amount as a positive number on Other adjustments to CA Itemized Deductions.

Health Savings Account (HSA) Distributions – If you received a tax-free HSA distribution for qualified medical expenses, enter the qualified expenses paid that exceed 7.5% of federal AGI as an adjustment to itemized deductions. To determine the amount of the itemized deduction adjustment:

· Calculate the medical expense deduction for California.

· Calculate the medical expense deduction for federal.

· Subtract the federal amount from the California amount. Enter the amount on Other adjustments to CA Itemized Deductions, as a positive amount.

Carryover Deduction Appreciated Stock Contributed to a Private Foundation prior to 1/1/02 – If deducting a charitable contribution carryover of appreciated stock donated to a private operating foundation prior to 1/1/02, and the fair market value allowed for federal purposes is larger than the basis allowed for California purposes, enter the difference as a negative number on Other adjustments to CA Itemized Deductions.

Interest on Loans from Utility Companies – Taxpayers are allowed a tax deduction for interest paid or incurred on a public utility company financed loan that is used to purchase and install energy efficient equipment or products, including zone-heating products for a qualified residence located in California. Federal law has no equivalent deduction. Enter the amount as a positive number on Other adjustments to CA Itemized Deductions.

Private Mortgage Insurance (PMI) – If you took the deduction on federal Schedule A (Form 1040), line 13, then subtract the same amount on Other adjustments to CA Itemized Deductions.

Claim of Right – If you had to repay an amount that you included in your income in an earlier year, because at the time you thought you had an unrestricted right to it, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may take a credit against your tax for the year in which you repaid it, whichever results in the least tax. If the amount repaid was not taxed by California, then no deduction or credit is allowed. If you claimed a credit for the repayment on your federal return and are deducting the repayment for California, enter the allowable deduction as a positive amount on Schedule CA (540), Other adjustments to CA Itemized Deductions. Deductions of $3,000 or less are subject to the 2% federal AGI limit. If you deducted the repayment on your federal return and are taking a credit for California, enter the amount of the federal deduction as a negative amount on Schedule CA (540), Other adjustments to CA Itemized Deductions. To help you determine whether to take a credit or deduction, see the Repayment section of federal Publication 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations.


For more information view page 48 of the California Form 540/540A Booklet by clicking here