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Category: California

What adjustments do I need to make to my California itemized deductions?

 

We have automatically carried over your itemized deductions from your federal return to your California return. However, you may need to make manually adjustments to the following:

 

State and Local Taxes 

California does not allow a deduction for state and local income tax (including limited partnership tax and income or franchise tax paid by corporations) and State Disability Insurance (SDI) or state and local general sales tax.

 

Other Taxes  

California doesn’t permit a deduction for foreign income taxes.

 

Home Mortgage Interest 

Federal changes limited the mortgage interest deduction debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California does not conform with federal law.  If your deduction was limited on the federal return enter an adjustment on itemized deductions for the amount over the federal limit.

Federal rules have suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity loans, unless the loan is used to buy, build, or improve the taxpayer’s home that secures the loan. California does not conform so if your deduction was limited enter an adjustment.

 

Mortgage Interest Credit

If you claimed both the Mortgage Interest Certificate on form 8396 and the Mortgage Interest Deduction on Schedule A (decreased by the amount of the Mortgage Interest Certificate), increase your California itemized deductions by the same amount.

 

Gifts by Cash or Check Qualified Charitable 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 subtraction.

 

College Athletic Seating Rights

Federal law no longer allows a charitable deduction for amounts paid to an institution of higher education in exchange for college athletic seating rights. California does not conform.

 

 

College Access Tax Credit

If you claimed a charitable contribution on your federal return for the College Access Tax Credit and you are claiming the College Access Tax Credit on your state return, subtract the amount used to figure the credit.

 

Other than by cash or check Qualified Charitable 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 subtraction

 

Carryover from Prior Year 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 an addition.

 

Nontaxable Income Expenses

If you claim expenses (Schedule A) for producing income taxed on the federal return but not taxed on the California return, enter the amount as a negative number.

If you claim expenses for producing income taxed on the California return but not taxed on the federal return, enter the amount as a positive number.

 

Employee Business Expense

If you filed Form 2106, Employee Business Expense, and have depreciation for an asset placed in service before January 1, 1987, you will need to figure the depreciation again using California law. If you claimed travel expenses in connection with temporary duty status, you will also need to figure the deduction again based on California law.

Compare line 10 of form 2106 and the form completed using California amounts. If the federal amount is larger, enter the difference as a negative number. If the California amount is larger, enter the difference as a positive number.

 

Investment Interest Expense

Use form FTB 3526, Investment Interest Expense Deduction, to figure the amount to enter.

 

Gambling Losses

You cannot claim California lottery losses on the CA return. If you claimed this on your federal return, you must add the amount back on the state return. 

 

Federal Estate Tax

Estate tax paid on income in respect of a decedent is not deductible on the California return and must be added back to the state return.

 

Generation Skipping Transfer Tax

Tax paid on generation skipping transfers is not deductible on the California return and must be added back to the state return.

 

State Legislator’s Travel Expenses

California law allows only the travel expenses for state legislators while away from home overnight. You must add back the amount that is not allowed on the state return.

 

Carryover Deduction Appreciated Stock Contributed to a Private Foundation prior to 1/1/02

If 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. 

 

Claim of Right

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it.

If the amount repaid was not taxed by California, then no deduction or credit is allowed.

 

 

Adoption-Related Expenses

If you deducted adoption related expenses on your Schedule A and are claiming the credit using the same amounts on your state return, subtract the amount of the credit claimed.

 

State Legislator’s Travel Expenses

California law allows only the travel expenses for state legislators while away from home overnight. You must add back the amount that is not allowed on the state return.

 

Interest on Loans from Utility Companies

If you purchased and installed energy efficient equipment or products purchased with a public utility company financed loan, you are permitted a tax deduction for the interest on the loan. This deduction is not allowed on the Federal return. 

 

 

For more information, view the California Form 540/540A Booklet by clicking here.