2023 Instructions for Schedule CA (540) (2024)

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2015, and the California Revenue and Taxation Code (R&TC).

What’s New

Federal Veterans Auto and Education Improvement Act (VAEIA) of 2022 – The VAEIA was enacted on January 5, 2023, and made amendments to the federal Servicemembers Civil Relief Act (SCRA). California conforms to the following VAEIA provisions:

A spouse of a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the spouse by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember's military orders.
For any taxable year of the marriage, a servicemember and the spouse of such servicemember may elect to use for purposes of taxation, regardless of the date on which the marriage of the servicemember and the spouse occurred, any of the following:
- The residence or domicile of the servicemember.
- The residence or domicile of the spouse.
- The permanent duty station of the servicemember.

For more information, get FTB Pub. 1032, Tax Information for Military Personnel.

Federal Consolidated Appropriations Act (CAA), 2023 – The CAA, 2023, was enacted on December 29, 2022, and it includes the federal Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022. In general, California Revenue and Taxation Code (R&TC) conforms to the changes to the retirement provisions under the SECURE 2.0 Act. California law does not conform to the federal changes that disallow a deduction for charitable conservation easem*nt contributions when the amount of the contribution exceeds 2.5 times the sum of each partner's relevant basis in the partnership. For more information on the allowance of the deduction for charitable conservation easem*nt contributions for California income tax purposes, get FTB Notice 2023-02.

For more general information, refer to the federal act and the California R&TC. Also, see Schedule CA (540), California Adjustments – Residents, specific line instructions in Part II, line 12.

California Microbusiness COVID-19 Relief Grant – The gross income exclusion for the California Microbusiness COVID-19 Relief Grant is extended until taxable years beginning before January 1, 2025. For more information, see Schedule CA (540) General Information, specific line instructions in Part I, Section B, line 8z, and R&TC Section 17158.1.

California Hope, Opportunity, Perseverance, and Empowerment (HOPE) for Children Trust Account Program – The California HOPE for Children Trust Account Act created the California HOPE for Children Trust Account Program for the purpose of providing an eligible child with a HOPE trust account. For taxable years beginning on or after January 1, 2023, California law allows an exclusion from gross income for any funds deposited, any investment returns accrued, and any accrued interest in a HOPE trust account and for any funds from a HOPE trust account that is withdrawn or transferred by an eligible youth. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17141.5.

Interagency Council on Homelessness Payment Exclusion – For taxable years beginning on or after January 1, 2023, California law allows an exclusion from gross income for payments received pursuant to the California Welfare and Institutions Code Section 8257 by members of the Interagency Council on Homelessness, its advisory committee, or its working groups who are or have been homeless. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17131.13.

Kincade Wildfire Exclusion – For taxable years beginning on or after January 1, 2020, and before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any qualified amount received in a settlement from Pacific Gas and Electric (PG&E) Company or its subsidiary relating to the 2019 Kincade Fire. If a qualified taxpayer included income for a qualified amount received from this settlement in a prior taxable year, the taxpayer can file an amended tax return for that year within the normal statute of limitations. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17139.2.

Zogg Wildfire Exclusion – For taxable years beginning on or after January 1, 2020, and before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any qualified amount received in a settlement from PG&E Company or its subsidiary relating to the 2020 Zogg Fire. If a qualified taxpayer included income for a qualified amount received from this settlement in a prior taxable year, the taxpayer can file an amended tax return for that year within the normal statute of limitations. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17139.3.

Discharge of Student Fees – For taxable years beginning on or after January 1, 2022, and before January 1, 2027, California law allows an exclusion from gross income for any amount of unpaid fees due or owed by a student to a community college that was discharged pursuant to California Education Code Section 32527. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17131.21.

Guaranteed Income Pilot Program Payment Exclusion – Beginning on June 30, 2022, and before July 1, 2026, California law allows an exclusion from gross income for any payments received by an individual from a guaranteed income pilot program or project that receives a grant pursuant to California Welfare and Institution Code Section 18997. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17131.12.

General Information

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, and the Business Entity tax booklets.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the R&TC in the instructions. Taxpayers should not consider the instructions as authoritative law.

Conformity

For updates regarding federal acts, go to ftb.ca.gov and search for conformity.

Federal Acts – In general, the R&TC does not conform to the changes under the following federal acts. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. For specific adjustments due to the following acts, see Schedule CA (540) specific line instructions:

American Rescue Plan Act (ARPA) of 2021 (enacted on March 11, 2021)
Consolidated Appropriations Act (CAA), 2021 (enacted on December 27, 2020)
Setting Every Community Up for Retirement Enhancement (SECURE) Act (enacted on December 20, 2019)

Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant – For taxable years beginning on or after January 1, 2021, and before January 1, 2030, California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant Program that is established by Section 12100.975 of the Government Code. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17158.

Turf Replacement Water Conservation Program – For taxable years beginning on or after January 1, 2022, and before January 1, 2027, California law allows an exclusion from gross income for any amount received as a rebate, voucher, or other financial incentive issued by a public water system, as defined, local government, or state agency for participation in a turf replacement water conservation program. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17138.2.

Fire Victims Trust Exclusion – For taxable years beginning before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any amount received from the Fire Victims Trust, established pursuant to the order of the United States Bankruptcy Court for the Northern District of California dated June 20, 2020, case number 19-30088, docket number 8053. If a qualified taxpayer included income for an amount received from the Fire Victims Trust in a prior taxable year, the taxpayer can file an amended tax return for that year. If the normal statute of limitations has expired, the taxpayer must have filed a claim by September 29, 2023. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17138.5.

Thomas and Woolsey Wildfires Exclusion – For taxable years beginning before January 1, 2027, California law allows a qualified taxpayer an exclusion from gross income for any amount received in a settlement from Southern California Edison for claims relating to the 2017 Thomas Fire or the 2018 Woolsey Fire. If a qualified taxpayer included income for an amount received from these settlements in a prior taxable year, the taxpayer can file an amended tax return for that year. If the normal statute of limitations has expired, the taxpayer must have filed a claim by September 29, 2023. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17138.6.

Reporting Requirements – Taxpayers may need to file form FTB 4197, Information on Tax Expenditure Items, with the tax return to report tax expenditure items as part of the Franchise Tax Board's (FTB) annual reporting requirements under R&TC Section 41. To determine if you have an R&TC Section 41 reporting requirement, see the R&TC Section 41 Reporting Requirements section in 540, Personal Income Tax Booklet, or get form FTB 4197.

Expanded Definition of Qualified Higher Education Expenses – For taxable years beginning on or after January 1, 2021, California law conforms to the expanded definition of qualified higher education expenses associated with participation in a registered apprenticeship program and payment on the principal or interest of a qualified education loan under the federal Further Consolidated Appropriations Act, 2020.

California Venues Grant – For taxable years beginning on or after September 1, 2020, and before January 1, 2030, California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Venues Grant Program that is administered by the Office of Small Business Advocate (CalOSBA). For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z and R&TC Section 17158.

California Microbusiness COVID-19 Relief Grant – For taxable years beginning on or after January 1, 2020, and before January 1, 2025, California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Microbusiness COVID-19 Relief Program that is administered by CalOSBA. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z.

Other Loan Forgiveness – For taxable years beginning on or after January 1, 2019, California law allows an exclusion from gross income for borrowers of forgiveness of indebtedness described in Section 1109(d)(2)(D) of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act as stated by section 278, Division N of the CAA, 2021. The CAA, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions generally do not apply to an ineligible entity. “Ineligible entity” means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of the CAA, 2021. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 3 or go to ftb.ca.gov and search for AB 80.

Shuttered Venue Operator Grant – For taxable years beginning on or after January 1, 2019, California law allows an exclusion from gross income for amounts awarded as a shuttered venue operator grant under the CAA, 2021. The CAA, 2021, allows deductions for eligible expenses paid for with grant amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions do not apply to an ineligible entity. "Ineligible entity" means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of Division N of the CAA, 2021. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 3, or R&TC Section 17158.3.

Small Business COVID-19 Relief Grant Program – For taxable years beginning on or after January 1, 2020, and before January 1, 2030, California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z.

Income Exclusion for Rent Forgiveness – For taxable years beginning on or after January 1, 2020, and before January 1, 2025, gross income shall not include a tenant’s rent liability that is forgiven by a landlord or rent forgiveness provided through funds grantees received as a direct allocation from the Secretary of the Treasury based on the CAA, 2021. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z.

Moving Expense Deduction – For taxable years beginning on or after January 1, 2021, taxpayers should file California form FTB 3913, Moving Expense Deduction, to claim moving expense deductions. Attach the completed form FTB 3913 to Form 540, California Resident Income Tax Return. For more information, see Schedule CA (540) specific line instructions in Part I, Section C, line 14, and get form FTB 3913.

Paycheck Protection Program (PPP) Loans Forgiveness – For taxable years beginning on or after January 1, 2019, California law allows an exclusion from gross income for covered loan amounts forgiven under the federal CARES Act, Paycheck Protection Program and Health Care Enhancement Act, Paycheck Protection Program Flexibility Act of 2020, the CAA, 2021, or the PPP Extension Act of 2021.

The CAA, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions do not apply to an ineligible entity. “Ineligible entity” means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of Division N of the CAA, 2021.

For more information, see specific line instructions for Schedule CA (540) in Part I, Section B, line 3 or R&TC Section 17131.8 or go to ftb.ca.gov and search for AB 80.

SECURE Act Repeal of Maximum Age 70½ – The SECURE Act repealed the maximum age of 70½ for traditional IRA contributions. California law does not conform to this federal provision. For more information, see Schedule CA (540) specific line instructions in Part I, Section C, line 20.

Coronavirus Aid, Relief, and Economic Security (CARES) Act – The CARES Act was enacted on March 27, 2020. In general, the R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. California law does not conform to the following federal provisions under the CARES Act:

Exclusion for certain employer payment of student loans
Health-savings account changes

The above list is not intended to be all-inclusive of the federal and state conformities and differences. For more information, see specific line instructions or refer to the R&TC.

Worker Status: Employees and Independent Contractors – Some individuals may be classified as independent contractors for federal purposes and employees for California purposes, which may also cause changes in how their income and deductions are classified. Proposition 22 was operative as of December 16, 2020, and may affect a taxpayer’s worker classification. For more information, see Schedule CA (540) specific line instructions in Part I, Section A, line 1a; Part I, Section B, line 3; Part I, Section C, line 15 and line 17; and Part II, line 4.

Rental Real Estate Activities – For taxable years beginning on or after January 1, 2020, the dollar limitation for the offset for rental real estate activities shall not apply to the low income housing credit program. For more information, see R&TC Section 17561(d)(1). Get form FTB 3801-CR, Passive Activity Credit Limitations, for more information.

Commercial Cannabis Activity – Beginning in taxable year 2020, California allows individuals and other taxpayers operating under the personal income tax law to claim credits and deductions of business expenses paid or incurred during the taxable year in conducting commercial cannabis activity. Sole proprietors are those that conduct a commercial cannabis activity that is licensed under California Medicinal and Adult-Use Cannabis Regulation and Safety Act (CA MAUCRSA). For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 3, and get form FTB 4197.

Excess Business Loss Limitation – The CARES Act made amendments to IRC Section 461(l) by eliminating the excess business loss limitation of noncorporate taxpayers for taxable year 2020 and retroactively removing the limitation for taxable years 2018 and 2019. California law does not conform to those amendments. Also, California law does not conform to the federal changes in the ARPA and the federal Inflation Reduction Act of 2022 that extend the limitation on excess business losses of noncorporate taxpayers for taxable years beginning after December 31, 2020, and ending before January 1, 2029. Complete form FTB 3461, California Limitation on Business Losses, if you are a noncorporate taxpayer and your net losses from all of your trades or businesses are more than $289,000 ($578,000 for married/RDP taxpayers filing a joint return). For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8p, and get form FTB 3461.

Alimony – California law does not conform to changes made by the TCJA to federal law regarding alimony and separate maintenance payments that are not deductible by the payor spouse, and are not includable in the income of the receiving spouse, if made under any divorce or separation agreement executed after December 31, 2018, or executed on or before December 31, 2018, and modified after that date (if the modification expressly provides that the amendments apply). For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 2a and Section C, line 19a.

Federal Tax Reform – In general, California R&TC does not conform to all of the changes under the TCJA. For adjustments due to the TCJA, see the specific line instructions for the following items:

Combat zone extended to Egypt’s Sinai Peninsula
Moving expenses and reimbursem*nts
Limitation on deduction of business interest
Limitation on employer’s deduction for fringe benefit expenses
Limitation on wagering losses
Sexual harassment settlements
Global intangible low-taxed income (GILTI) under IRC Section 951A
Qualified equity grants
Expanded use of IRC Section 529 account funds
Living expenses for members of Congress
Limitation on state and local tax deduction
Mortgage and home equity indebtedness interest deduction
Limitation on charitable contribution deduction
College athletic seating rights
Casualty or theft loss(es)
Miscellaneous itemized deductions

Registered Domestic Partners (RDPs) – RDPs will compute their limitations based on the combined federal adjusted gross income (AGI) of each partner’s individual tax return filed with the Internal Revenue Service (IRS).

For column A, Part I and Part II, combine each line item of your federal amounts from each partner’s individual federal tax return. For more information on RDPs, get FTB Pub. 737, Tax Information for Registered Domestic Partners. The combined federal AGI used to compute limitations is different from the recalculated federal AGI used on Form 540, line 13. In situations where RDPs have no RDP adjustments, these amounts may be the same.

Military Personnel – Servicemembers domiciled outside of California, and their spouses/RDPs may exclude the servicemember’s military compensation from gross income when computing the tax rate on nonmilitary income. Requirements for military servicemembers domiciled in California remain unchanged. Military servicemembers domiciled in California must include their military pay in total income. In addition, they must include their military pay as California source income when stationed in California. However, military pay is not California source income when a servicemember is permanently stationed outside of California. Beginning 2009, the federal Military Spouses Residency Relief Act may affect the California income tax filing requirements for spouses of military personnel. For more information, get Form 540NR, California Nonresident or Part-Year Resident Income Tax Return, and FTB Pub. 1032.

Single Member Limited Liability Company (SMLLC) – If you are a single member limited liability company, that is organized or doing business in California, or registered with the California Secretary of State (SOS), you are required to file Form 568, Limited Liability Company Return of Income, pay the annual tax and LLC Fee (if applicable), in addition to filing your tax return. Get Form 568, Limited Liability Company Tax Booklet, for more information.

Purpose

Use Schedule CA (540) to make adjustments to your federal adjusted gross income and to your federal itemized deductions using California law.

Specific Line Instructions

Part I Income Adjustment Schedule

Column A – Federal Amounts

Section A, Line 1a through Line 7, and Section B, Line 1 through Line 9a

Enter in Section A, line 1a through line 7, and Section B, line 1 through line 9a the same amounts entered on your federal Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors, line 1a through line 7; and federal Schedule 1 (Form 1040), Additional Income and Adjustments to Income, line 1 through line 9.

Line 10 – Total

Combine the amounts in Section A, line 1z through line 7, and Section B, line 1 through line 7 and line 9a.

Section C, Line 11 through Line 18 and Line 20 through Line 25

Enter the same amounts entered on your federal Schedule 1 (Form 1040), line 11 through line 18 and line 20 through line 25.

Line 19a and Line 19b

Enter on line 19a the same amount entered on your federal Schedule 1 (Form 1040), line 19a. Enter on line 19b the social security number (SSN) or individual taxpayer identification number (ITIN) and last name of the person to whom you paid alimony.

Line 26

Add line 11 through line 23 and line 25.

Line 27 – Total

Subtract line 26 from line 10. This amount should match the amount entered on federal Form 1040 or 1040-SR, line 11.

Column B and Column C – Subtractions and Additions

Use these columns to enter subtractions and additions to the federal amounts in column A that are necessary because of differences between California and federal law. Enter all amounts as positive numbers unless instructed otherwise.

You may need one or more of the following FTB publications to complete column B and column C:

1001, Supplemental Guidelines to California Adjustments
1005, Pension and Annuity Guidelines
1031, Guidelines for Determining Resident Status
1032, Tax Information for Military Personnel
1100, Taxation of Nonresidents and Individuals Who Change Residency

To get forms and publications, go to ftb.ca.gov/forms.

Section A – Income

Line 1a through Line 1i and Line 1z

Generally, you will not make any adjustments on these lines. If you did not receive any of the following types of income, make no entry on line 1a through line 1i and line 1z in either column B or column C.

Active duty military pay – Special rules apply to active duty military taxpayers. Get FTB Pub. 1032 for more information.

Combat zone foreign earned income exclusion – For taxable years beginning on and after January 1, 2018, California does not conform to the federal foreign earned income exclusion for amounts received by certain U.S. citizens or resident aliens with an abode in the U.S., specifically contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones. Enter the amount excluded from federal income on Part I, Section B, line 8d, column C.

Native American earned income exemption – California does not tax federally recognized tribal members living in California Indian country who earn income from any federally recognized California Indian country. Military compensation is considered income from reservation sources. Enrolled members who receive reservation sourced per capita income must reside in their affiliated tribe’s Indian country to qualify for tax exempt status. Enter on applicable line 1a through line 1h, column B the earnings included in federal income that are exempt for California. Attach form FTB 3504, Enrolled Tribal Member Certification, to Form 540. For more information, get form FTB 3504.

Tax treaty – If you excluded income exempted by U.S. tax treaties on your federal Form 1040 or 1040-SR (unless specifically exempted for state purposes), enter the excluded amount on applicable line 1a through line 1h, column C.

Sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act – California excludes this item from income. Enter on line 1a or line 1h as applicable, column B the amount of sick pay benefits received under the Federal Insurance Contributions Act and Railroad Retirement Act included in the amount in column A.

a. Total Amount from Federal Form(s) W-2, Box 1

Employees and independent contractors – Some taxpayers may be classified as independent contractors for federal purposes and as employees for California purposes. If the taxpayer is classified as an employee for California purposes, enter the amount reported as gross income of the business from federal Schedule C (Form 1040), Profit or Loss from Business, line 7, as wages on line 1a, column C.

d. Medicaid Waiver Payments Not Reported on Federal Form(s) W-2

Income exclusion for In-Home Supportive Services (IHSS) supplementary payments – If you are an IHSS provider who received IHSS supplementary payments that were included in federal wages, enter the IHSS supplementary payments on line 1d, column B. IHSS providers only receive a supplementary payment if they paid a sales tax on the IHSS services they provide. The supplementary payment is equal to the sales tax paid plus any increase in the federal payroll withholding paid due to the supplementary payment.

h. Other Earned Income

Ridesharing fringe benefit differences – Under federal law, certain qualified transportation benefits are excluded from gross income. Under the R&TC, there are no monthly limits for the exclusion of these benefits and California’s definitions are more expansive. Enter the amount of ridesharing benefits received and included in federal income on line 1h, column B.

Exclusion for compensation from exercising a California Qualified Stock Option (CQSO) – To claim this exclusion:

Your earned income is $40,000 or less from the corporation granting the CQSO.
The market value of the options granted to you must be less than $100,000.
The total number of shares must be 1,000 or less.
The corporation issuing the stock must designate that the stock issued is a CQSO at the time the option is granted.

If you included an amount qualifying for this exclusion in federal income, enter that amount on line 1h, column B.

Employer health savings account (HSA) contribution – Enter the amount of any employer HSA contribution from federal Form W-2, Wage and Tax Statement, box 12, code W on line 1h, column C.

i. Nontaxable Combat Pay Election

Combat zone extended to Egypt’s Sinai Peninsula – Federal law extended combat zone tax benefits to the Sinai Peninsula of Egypt. California law does not conform. Enter the amount of combat pay excluded from federal income on line 1i, column C. Get FTB Pub. 1032 for more information.

Line 2 – Taxable Interest

If you did not receive any of the kinds of income listed (within this line instructions), make no entry on this line in either column B or column C.

Enter in column B the interest you received from:

U.S. savings bonds (except for interest from series EE U.S. savings bonds issued after 1989 that qualified for the Education Savings Bond Program exclusion).
U.S. Treasury bills, notes, and bonds.
Any other bonds or obligations of the United States and its territories.
Interest from Ottoman Turkish Empire settlement payments.
Interest income from children under age 19 or students under age 24 included on the child’s federal tax return and reported on the California tax return by the parent. For more information, get form FTB 3803, Parents’ Election to Report Child’s Interest and Dividends.

Certain mutual funds pay “exempt-interest dividends.” If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax. The proportion of dividends that are tax‑exempt will be shown on your annual statement or statement issued with federal Form 1099-DIV, Dividends and Distributions. For more information, get FTB Pub. 1001.

Enter in column C the interest you identified as tax-exempt interest on your federal Form 1040 or 1040-SR, line 2a, and which you received from:

The federally exempt interest dividends from other states, or their municipal obligations and/or from mutual funds that do not meet the 50% rule as previously discussed.
Non-California state bonds.
Non-California municipal bonds issued by a county, city, town, or other local government unit.
Obligations of the District of Columbia issued after December 27, 1973.
Non-California bonds if the interest was passed through to you from S corporations, trusts, partnerships, or Limited Liability Companies (LLCs).
Interest or other earnings earned from an HSA are not treated as tax deferred. Interest or earnings in an HSA are taxable in the year earned.
Interest on any bond or other obligation issued by the Government of American Samoa.
Interest income from children under age 19 or students under age 24 included on the parent’s federal tax return and reported on the California tax return by the child.

Make no entries in either column B or column C for interest you earned on Federal National Mortgage Association (Fannie Mae) Bonds, Government National Mortgage Association (Ginnie Mae) Bonds, and Federal Home Loan Mortgage Corporations (FHLMC) securities, or grants paid to low income individuals.

Get FTB Pub. 1001 if you received interest income from the items listed (within this line instructions) that is passed through to you from S corporations, trusts, estates, partnerships, or LLCs.

Line 3 – Ordinary Dividends

Generally, no difference exists between the amount of dividends reported in column A and the amount reported using California law. However, California taxes dividends derived from other states and their municipal obligations.

Add dividends received from the following and enter in column B:

Dividend income from children under age 19 or students under age 24 included on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Add dividends received from the following and enter in column C:

Controlled foreign corporation (CFC) dividends in the year distributed.
Regulated investment company (RIC) capital gains in the year distributed.
Distributions of pre-1987 earnings from an S corporation.
Dividend income from children under age 19 or students under age 24 excluded on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Get FTB Pub. 1001 if you received dividends from:

Non-cash patronage dividends from farmers’ cooperatives or mutual associations.
A CFC.
Distributions of pre-1987 earnings from S corporations.
Undistributed capital gains for RIC shareholders.

Line 4a and Line 4b – IRA Distributions

Generally, no adjustments are made on this line. However, there may be significant differences in the taxable amount of a distribution (including a distribution from conversion of a traditional IRA to a Roth IRA), depending on when you made your contributions to the IRA. Differences also occur if your California IRA deductions were different from your federal deductions because of differences between California and federal self-employment income.

If the taxable amount using California law is:

Less than the amount taxable under federal law, enter the difference in column B.
More than the amount taxable under federal law, enter the difference in column C.

Get FTB Pub. 1005 for more information and worksheets for figuring the adjustment to enter on this line, if any.

If you have an IRA basis and were a nonresident in prior years, you may need to restate your California IRA basis. Get FTB Pub. 1100 for more information.

Coverdell Education Savings Account (ESA) formerly known as Education (ED) IRA – If column A includes a taxable distribution from an ED IRA, you may owe additional tax on that amount. Get form FTB 3805P, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

Line 5a and Line 5b – Pensions and Annuities

Generally, no adjustments are made on this line. However, if you received Tier 2 railroad retirement benefits or partially taxable distributions from a pension plan, you may need to make the following adjustments.

If you received a federal Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board, for railroad retirement benefits and included all or part of these benefits in taxable income in column A, enter the taxable benefit amount in column B.

If you began receiving a retirement annuity between July 1, 1986, and January 1, 1987, and elected to use the three-year rule for California purposes and the annuity rules for federal purposes, enter in column C the amount of the annuity payments you excluded for federal purposes.

You may have to pay an additional tax if you received a taxable distribution from a qualified retirement plan before reaching age 59½ and the distribution was not rolled over into another qualified plan. Get form FTB 3805P for more information.

Line 6 – Social Security Benefits

California excludes U.S. social security benefits or equivalent Tier 1 railroad retirement benefits from taxable income. Enter in column B the amount of taxable U.S. social security benefits or equivalent Tier 1 railroad retirement benefits shown on line 6b, column A.

Line 7 – Capital Gain or (Loss)

Generally, no adjustments are made on this line. California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists. However, the California basis of the assets listed (within this line instructions) may be different from the federal basis due to differences between California and federal laws. If there are differences, use Schedule D (540), California Capital Gain or Loss Adjustment, to calculate the amount to enter on line 7.

Gain or loss from the sale of investments inside an HSA.
Gain on sale of qualified small business stock under IRC Section 1045 and IRC Section 1202.
Basis amounts resulting from differences between California and federal law in prior years.
Gain or loss on stock and bond transactions.
Installment sale gain reported on form FTB 3805E, Installment Sale Income.
Gain on the sale of personal residence where depreciation was allowable.
Pass-through gain or loss from partnerships, fiduciaries, S corporations, or LLCs.
Capital loss carryover from your 2022 California Schedule D (540).
Capital gain from children under age 19 or students under age 24 included on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Get FTB Pub. 1001 for more information about:

Disposition of S corporation stock acquired before 1987.
Capital gain exclusion for sale of principal residence by a surviving spouse.
Gain on sale or disposition of qualified assisted housing development to low-income residents or to specified entities maintaining housing for low‑income residents.
Undistributed capital gain for RIC shareholders.
Gain or loss on the sale of property inherited before January 1, 1987.
Capital loss carrybacks.

Section B – Additional Income

Line 1 – Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

California does not tax the state income tax refund. Enter in column B the amount of state tax refund entered in column A.

Line 2a – Alimony Received

Under federal law, the TCJA, alimony and separate maintenance payments are not includable in the income of the receiving spouse, if made under any divorce or separation agreement executed after December 31, 2018, or executed on or before December 31, 2018 and modified after that date (if the modification expressly provides that the amendments apply). California law does not conform. If you received alimony not included in your federal income, enter the alimony received in column C.

If you are a nonresident alien and received alimony not included in your federal income, enter the alimony on this line in column C.

Line 3 – Business Income or (Loss)

Adjustments to federal business income or loss you reported in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs. As a result, the recovery period or basis used to figure California depreciation may be different from the amount used for federal purposes.

Adjustments are figured on form FTB 3885A, Depreciation and Amortization Adjustments, and are most commonly necessary because of the following:

Before January 1, 1987, California did not allow depreciation under the federal accelerated cost recovery system. Continue to figure California depreciation for those assets in the same manner as prior years.
On or after January 1, 1987, California provides special credits and accelerated write-offs that affect the California basis of qualifying assets. Refer to the bulleted list below.

Use form FTB 3801, Passive Activity Loss Limitations, to figure the total adjustment for line 3 if you have:

One or more passive activities that produce a loss.
One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule C (Form 1040).

Use form FTB 3885A to figure the total adjustment for line 3 if you have:

Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
Passive activities that produce gains.

Other loan forgiveness – Under federal law, the CAA, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on line 3, column C.

Paycheck Protection Program loans forgiveness – Under federal law, the CAA, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on line 3, column C.

Also, the ARPA expands PPP eligibility to include “additional covered nonprofit entities” which includes certain Code 501(c) nonprofit organizations and Internet-only news publishers and Internet-only periodical publishers. California law does not conform to this expansion of PPP eligibility. If you met the PPP eligibility requirements and excluded the amount from gross income for federal purposes, enter the excluded amount on line 3, column C.

Shuttered venue operator grant – Under federal law, the CAA, 2021, allows deductions for eligible expenses paid for with grant amounts. California law conforms to this federal provision with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on line 3, column C.

Employees and independent contractors – Some taxpayers may be classified as independent contractors for federal purposes and as employees for California purposes. If the taxpayer is classified as an employee for California purposes, enter the amount of federal business income from line 3, column A, on line 3, column B. Enter the amount of federal business loss from line 3, column A, on line 3, column C.

Commercial cannabis activity – Under federal law, deductions for business expenses of a trade or business paid or incurred during the taxable year in conducting commercial cannabis activity are disallowed. California does not conform. California allows cannabis business licensed under CA MAUCRSA to claim these expenses. Enter the amount of these expenses on line 3, column B.

Limitation on deduction of business interest – Under federal law, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjustable taxable income. California law does not conform. Figure the difference between the amounts allowed using federal law and California law. Enter the difference on line 3, column B.

Limitation on employer’s deduction for fringe benefit expenses – Under federal law, deductions for entertainment expenses are disallowed; the current 50% limit on the deductibility of business meals is expanded to meals provided through an in-house cafeteria or otherwise on the premises of the employer; deductions for employee transportation fringe benefits (e.g., parking and mass transit) are denied; and no deduction is allowed for transportation expenses that are the equivalent of commuting for employees (e.g., between the employee’s home and the workplace), except as provided for the safety of the employee. California does not conform. Figure the difference between the amounts allowed using federal law and California law. Enter the difference on line 3, column B or column C.

Limitation on wagering losses – Under federal law, all deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings. California law does not conform. Figure the difference between the amounts allowed using federal law and California law. Enter the difference on line 3, column B.

Sexual harassment settlements – Under federal law, no deduction is allowed for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement. California law does not conform. Enter the amount received and included in federal income on line 3, column B.

Penalty assessed by professional sports league – California does not allow a business expense deduction for any fine or penalty paid or incurred by an owner of a professional sports franchise assessed or imposed by the professional sports league that includes that franchise. If the fine or penalty was deducted for federal purposes, enter this amount on line 3, column C.

Business expense deduction disallowance – California disallows a deduction for a business expense related to a payment to the Edge College and Career Network, LLC, to a taxpayer who meets all of the following:

They are charged as a defendant in any of several specified criminal complaints as listed in R&TC Section 17275.4.
There is a final determination of their guilt with regard to a violation of any offense arising out of that criminal complaint.
There is a finding that they took the deduction unlawfully.

For more information, see R&TC Section 17275.4. Enter the amount of this deduction on line 3, column C.

Get FTB Pub. 1001 for more information about:

Income related to:

Business, trade, or profession carried on within California that is an integral part of a unitary business carried on both within and outside California.
Pro-rata share of income received from a CFC by a U.S. shareholder.

Basis adjustments related to:

Property acquired prior to becoming a California resident.
Sales or use tax credit for property used in a former Enterprise Zone (EZ), Local Agency Military Base Recovery Area (LAMBRA), or Targeted Tax Area (TTA).
Reduced recovery periods for fruit-bearing grapevines replaced in a California vineyard on or after January 1, 1992, as a result of phylloxera infestation; or on or after January 1, 1997, as a result of Pierce’s disease.
Expenditures for tertiary injectants.
Property placed in service on an Indian reservation after December 31, 2017, and before January 1, 2022.
Amortization of pollution control facilities.
Discharge of real property business indebtedness.
Vehicles used in an employer-sponsored ridesharing program.
An enhanced oil recovery system.
Joint Strike Fighter property costs.
The cost of making a business accessible to disabled individuals.
Property for which you received an energy conservation subsidy from a public utility on or after January 1, 1995, and before January 1, 1997.
Research and experimental expenditures.
Reduction of capitalized costs attributable to the federal Work Opportunity Credit.

Business deductions related to:

Wages paid in a former EZ, LAMBRA, Manufacturing Enhancement Area (MEA), or TTA.
Abandonment or tax recoupment fees for open-space easem*nts and timberland preserves.
Research expense.
Employer wage expense for the federal Work Opportunity Credit.
Pro-rata share of deductions received from a CFC by a U.S. shareholder.
Interest paid on indebtedness in connection with company-owned life insurance policies.
Premiums paid on life insurance policies, annuities, or endowment contracts issued after June 8, 1997, where the owner of the business is directly or indirectly a policy beneficiary.
Commercial Revitalization Deductions for Renewal Communities.
Small Employer Health Insurance Credit.

Line 4 – Other Gains or (Losses)

Generally, no adjustments are made on this line. However, the California basis of your other assets may differ from your federal basis due to differences between California and federal law. Therefore, you may have to adjust the amount of other gains or losses. Get Schedule D-1, Sales of Business Property.

Line 5 – Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc.

Adjustments to federal income or loss you reported in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs. As a result, the recovery period or basis used to figure California depreciation may be different from the recovery period or amount used for federal. For more information, see the instructions for Part I, Column B and Column C, Section B, line 3.

California law does not conform to federal law for material participation in rental real estate activities. Beginning in 1994, and for federal purposes only, rental real estate activities conducted by persons in real property business are not automatically treated as passive activities. Get form FTB 3801 for more information.

Use form FTB 3801 to figure the total adjustment for line 5 if you have:

One or more passive activities that produce a loss.
One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule E (Form 1040), Supplemental Income and Loss.

Use form FTB 3885A to figure the total adjustment for line 5 if you have:

Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
Passive activities that produce gains.

LLCs that are classified as partnerships for California purposes and limited liability partnerships (LLPs) are subject to the same rules as other partnerships. LLCs report distributive items to members on Schedule K‑1 (568), Member’s Share of Income, Deductions, Credits, etc. LLPs report to partners on Schedule K-1 (565), Partner’s Share of Income, Deductions, Credits, etc.

Get FTB Pub. 1001 for more information about accumulation distributions to beneficiaries for which the trust was not required to pay California tax because the beneficiary’s interest was contingent.

Line 6 – Farm Income or (Loss)

Adjustments to federal income or loss you report in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, NOLs, and accelerated write‑offs. As a result, the recovery period or basis you use to figure California depreciation may be different from the amount used for federal purposes, and you may need to make an adjustment to your farm income or loss. For more information, see the instructions for Part I, Column B and Column C, Section B, line 3.

Use form FTB 3801 to figure the total adjustment for line 6 if you have:

One or more passive activities that produce a loss.
One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule F (Form 1040), Profit or Loss From Farming.

Use form FTB 3885A to figure the total adjustment for line 6 if you have:

Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
Passive activities that produce gains.

Line 7 – Unemployment Compensation

California excludes unemployment compensation from taxable income. Enter on line 7, column B the amount of unemployment compensation shown in column A.

Paid Family Leave Insurance (PFL) benefits, also known as Family Temporary Disability Insurance – Payments received from the PFL Program are reported on federal Form 1099-G, Certain Government Payments. California excludes payments received from the PFL program from taxable income. Enter on line 7, column B the amount of PFL payments shown in column A. For more information, get FTB Pub. 1001.

Line 8 – Other Income

a. Federal Net Operating Loss – Enter the amount of the federal NOL included on line 8a, column A, as a positive number in column C. Get form FTB 3805V to figure the allowable California NOL.

b. Gambling

California lottery winnings – California excludes California lottery winnings from taxable income. Enter in column B the amount of California lottery winnings included in the federal amount on line 8b, column A.

Make no adjustment for lottery winnings from other states. They are taxable by California. If you reduced gambling income for California lottery income, you may need to reduce the losses included in the federal itemized deductions on Part II, line 16, column A. Enter these losses on Part II, line 16, column B.

c. Cancellation of Debt

Mortgage forgiveness debt relief – California law does not conform to federal law regarding the exclusion of income from discharge of indebtedness from the disposition of your principal residence occurring after December 31, 2017. Enter the amount of discharge on line 8c, column C.

Certain employer payments of student loans – California does not conform to the CARES Act regarding the exclusion of student loan payments made on behalf of an employee by an employer. Enter the amount of loan payment on line 8c, column C.

Student loan discharged due to closure of a for-profit school – California law allows an income exclusion for income that would result from the discharge of any student loan of an eligible individual. An individual is eligible for the exclusion if any of the following apply during the taxable year.

The individual is granted a discharge of any student loan because:
1. The individual successfully asserts that the school did something wrong or failed to do something that it should have done.
2. The individual could not complete a program of study due to the school closing.
The individual attended a Brightwood College school on or before December 5, 2018, and is granted a discharge of any student loan made in connection with attending that school, and that discharge is not covered under item 1.
The individual attended a location of The Art Institute of California and is granted a discharge of any student loan made in connection with attending that school, and that discharge is not covered under item 1.

Enter in column B the amount of this type of income if it was included on line 8c, column A, as income for federal purposes.

d. Foreign Earned Income Exclusion from Federal Form 2555

Federal foreign earned income and housing exclusion – Enter in column C, as a positive number, the amount excluded from federal income on federal Schedule 1 (Form 1040), line 8d.

Combat zone foreign earned income exclusion – Enter the amount excluded from federal income on line 8d, column C, as a positive number.

e. Income from Federal Form 8853

Rollover from an Archer MSA to an HSA – Since California does not recognize HSAs, a rollover from an Archer MSA to an HSA is treated as distribution not used for qualified medical expenses. For California, the distribution is included in California taxable income and the additional 12.5% tax applies. For more information, get form FTB 3805P.

Line 9b1 – Disaster Loss Deduction from Form FTB 3805V

If you have a California disaster loss carryover deduction and there is income in the current taxable year, enter the total amount of disaster loss carryover deduction from your 2023 form FTB 3805V, Part III, line 2, column (f), as a positive number in column B.

NOL attributable to a qualified disaster – If you deduct a 2023 disaster loss in the 2023 taxable year and have remaining disaster loss that results in an NOL, the NOL can be carried forward. Get form FTB 3805V for more information.

Line 9b2 – NOL Deduction from Form FTB 3805V

The allowable NOL carryover under California law is different from the allowable NOL carryover under federal law. If you have a California NOL carryover from prior years, enter the total allowable California NOL carryover deduction for the current year from form FTB 3805V, Part III, line 2, column (f), as a positive number in column B.

Line 9b3 – NOL Deduction from Form FTB 3805Z, FTB 3807, or FTB 3809

Enter in column B the total NOL figured on the following forms:

FTB 3805Z, Enterprise Zone Deduction and Credit Summary, line 3b
FTB 3807, Local Agency Military Base Recovery Area Deduction and Credit Summary, line 3b
FTB 3809, Targeted Tax Area Deduction and Credit Summary, line 3b

Line 10 – Total

Add Section A, line 1z through line 7, and Section B, line 1 through line 7, line 9a and line 9b1 through line 9b3 in column B. Add Section A, line 1z through line 7, and Section B, line 1 through line 7, and line 9a in column C. Enter the totals on line 10.

Section C – Adjustments to Income

Line 11 through Line 19a and Line 20 through Line 23 and Line 25

California law is the same as federal law with the exception of the following:

Line 11 Educator Expenses – California does not conform to federal law regarding educator expenses. Enter the amount from line 11, column A on line 11, column B.
Line 12 Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials – If claiming a depreciation deduction as an unreimbursed employee business expense on federal Form 2106, Employee Business Expenses, you may have an adjustment in column B or column C. For more information, get FTB Pub. 1001.

Federal law eliminated the $3,000 deduction for living expenses for members of Congress while away from home. California does not conform. Enter the amount of living expenses on line 12, column C.
Line 13 Health Savings Account Deduction – Federal law allows a deduction for contributions to an HSA account. California law does not conform. Enter the amount from line 13, column A, on line 13, column B.
Line 14 Moving Expenses – California law does not conform to federal law regarding the suspension of the deduction for moving expenses, except for members of the Armed Forces on active duty.

Non-military and military taxpayers, prepare form FTB 3913. After completing form FTB 3913, if you are a non-military taxpayer and checked the No box on line 5 of form FTB 3913, enter the amount from form FTB 3913, line 5 on Schedule CA (540), Part I, Section A, line 1h, column C.

If you are a non-military taxpayer and checked the Yes box on line 5 of form FTB 3913, enter the amount from form FTB 3913, line 5 on Schedule CA (540), Part I, line 14, column C.
Line 15 Deductible Part of Self-employment Tax – A taxpayer may be classified as an independent contractor for federal purposes and as an employee for California purposes. This deduction is not allowed to an employee. If for California purposes, the taxpayer is classified as an employee, an adjustment is needed in column B. Enter the amount from line 15, column A, on line 15, column B.
Line 17 Self-employed Health Insurance Deduction – A taxpayer may be classified as an independent contractor for federal purposes and as an employee for California purposes. This deduction is not allowed to an employee. If for California purposes, the taxpayer is classified as an employee, an adjustment is needed in column B. Enter the amount from line 17, column A, on line 17, column B.

Note: A taxpayer classified as an employee for California purposes who makes an adjustment on this line may be able to claim this amount as a deduction for medical and dental expenses. For more information, see instructions for Part II, line 4.
Line 19a Alimony Paid – Under federal law, the TCJA, alimony and separate maintenance payments are not deductible by the payor spouse, if made under any divorce or separation agreement executed after December 31, 2018, or executed on or before December 31, 2018, and modified after that date (if the modification expressly provides that the amendments apply). California law does not conform. If you paid alimony and did not deduct it on your federal tax return, enter the alimony paid in column C.

If you are a nonresident alien and did not deduct alimony on your federal tax return, enter the amount you paid in column C.

Line 19b (Recipient’s SSN/Last Name) – Enter the SSN or ITIN and last name of the person to whom you paid alimony.
Line 20 – IRA Deduction
408 election – To take the election, the federal deduction is taken on line 20, column A. The election for California will be on line 20, column B or C. Get FTB Pub. 1005 for more information.

IRA age – If you report an IRA deduction on line 20, column A at age 70½ or older, include that amount deducted for federal in the total you enter on line 20, column B. Get FTB Pub. 1005 for more information.
Line 21 Student Loan Interest Deduction – California law conforms to federal law regarding student loan interest deduction except for a spouse/RDP of a non-California domiciled military taxpayer residing in a community property state. Use the Student Loan Interest Deduction Worksheet to compute the amount to enter on line 21. For more information, get FTB Pub. 1032.

Student Loan Interest Deduction Worksheet
1. Enter the total amount from Schedule CA (540), line 21, column A. If the amount on line 1 is zero, STOP. You are not allowed a deduction for California.
2. Enter the total interest you paid in 2023 on qualified student loans but not more than $2,500 here.
3. Add federal Schedule 1 (Form 1040), line 21 (student loan interest deduction) to federal Form 1040 or 1040-SR, line 11 (AGI). Enter the result here.
4. Enter the amount shown below for your filing status.
  - Single, head of household, or qualifying surviving spouse/RDP – $60,000
  - Married/RDP filing jointly – $120,000
5. Is the amount on line 3 more than the amount on line 4?
  - No. Skip line 5 and line 6, enter -0- on line 7, and go to line 8.
  - Yes. Subtract line 4 from line 3.
6. Divide line 5 by $15,000 ($30,000 if married/RDP filing jointly). Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000.
7. Multiply line 2 by line 6.
8. Student loan interest deduction. Subtract line 7 from line 2.
9. Student loan interest adjustment. If line 1 is less than line 8, enter the difference here and on Schedule CA (540), line 21, column C.

Line 22 (Reserved) – For taxable years beginning after December 31, 2020, the tuition and fees deduction was repealed.
Line 24 – Other Adjustments

b. Deductible expenses related to income reported on line 8l from the rental of personal property engaged in for profit – Generally, California law conforms with federal law and no adjustment is needed. However, if differences exist, enter the difference between the federal and California amount in column B or column C.

c. Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8m – Federal law allows an exclusion from gross income for the value of any medal awarded or prize money received from the U.S. Olympic Committee on account of competition in the Olympic Games or Paralympic Games. The exclusion does not apply to a taxpayer for any year in which the taxpayer’s AGI exceeds $1 million, or half of that amount in the case of a married individual filing a separate return. California does not conform. If you deducted the amount for federal purposes, enter that amount in column B.

d. Reforestation amortization and expenses – California law allows a deduction for reforestation amortization and expenses with respect to qualified timber property located in California. Enter the amount from column A that is for non-California qualified timber property in column B.

f. Contributions to IRC Section 501(c)(18)(D) pension plans – If the contribution amount for California is different than the federal amount, you will need to make an adjustment in column B or column C. For more information, get FTB Pub. 1005.

g. Contributions by certain chaplains to IRC Section 403(b) plans – If the contribution amount for California is different than the federal amount, you will need to make an adjustment in column B or column C. For more information, get FTB Pub. 1005.

i. Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations – California law does not conform to federal law regarding the deduction of these attorney fees and court costs. Enter the amount from column A in column B.

j. Housing deduction from federal Form 2555 – If you claimed the foreign housing deduction for federal purposes, enter the amount from column A in column B.

Line 26 – Add line 11 through line 23 and line 25 in column B and column C.

Line 27 – Total

Subtract line 26 from line 10 in column B and column C.

Also, transfer the amount from:

Line 27, column B to Form 540, line 14.
If column B is a negative number, transfer the amount as a positive number to Form 540, line 16.
Line 27, column C to Form 540, line 16.
If column C is a negative number, transfer the amount as a positive number to Form 540, line 14.

Part II Adjustments to Federal Itemized Deductions

Important: If you did not itemize deductions on your federal tax return but will itemize deductions on your California tax return, first complete federal Schedule A (Form 1040), Itemized Deductions. Then check the box at the top of Schedule CA (540), Part II and complete line 1 through line 30. Attach a copy of federal Schedule A (Form 1040) to your Form 540.

Column A – Federal Amounts

Line 1 through Line 16

Enter on line 1 through line 16 the same amounts you entered on your federal Schedule A (Form 1040), line 1 through line 16.

Column B and Column C – Subtractions and Additions

Line 1 through Line 4

Employees and independent contractors – Taxpayers classified as independent contractors for federal purposes and classified as employees for California purposes may claim the amount of self-employed health insurance deduction for federal purposes as a medical and dental expense deduction for California purposes. Combine the amount paid for self-employed health insurance with other medical and dental expenses (as applicable). The total amount of the medical and dental expenses is subject to the 7.5% of federal AGI threshold. Enter the difference between the medical and dental expense deduction allowed for California and federal on line 4, column C.

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 on line 4, column C.

Line 5a – 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. Enter that amount on line 5a, column B.

Line 5e – The federal deduction for state and local tax is limited to $10,000 ($5,000 for married filing separately) for the aggregate of state and local income taxes and property taxes. California does not conform. If your deduction was limited under federal law, enter an adjustment on line 5e, column C for the amount over the federal limit.

Line 6 – Other Taxes

California does not allow a deduction for foreign income taxes. Enter that amount on line 6, column B.

Federal law suspended the deduction for foreign property taxes. California law does not conform. Enter the amount on line 6, column C.

Generation skipping transfer tax – Tax paid on generation skipping transfers is not deductible under California law. Enter the amount of generation skipping tax included in line 6, column A on line 6, column B.

Line 8 – Home Mortgage Interest

Federal law limited the mortgage interest deduction acquisition debt maximum from $1,000,000 ($500,000 for married filing separately) to $750,000 ($375,000 for married filing separately). California law does not conform. If your deduction was limited under federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

Federal law suspended the deduction on up to $100,000 ($50,000 for married filing separately) for interest on home equity indebtedness, unless the loan is used to buy, build, or substantially improve the taxpayer’s home that secures the loan. California law does not conform. If your deduction was limited under the federal law, enter an adjustment on line 8, column C for the amount over the federal limit.

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 on line 8, column C.

Line 9 – Investment Interest

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 line 9, column B or column C.

Line 11 – 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 AGI. Figure the difference between the amount allowed using federal law and the amount allowed using California law. Enter the difference on line 11, column B.

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 law does not conform. Enter the amount on line 11, column C.

College Access Tax Credit – If you deducted a charitable contribution amount for the College Access Tax Credit Fund on your federal Schedule A (Form 1040) and are claiming the College Access Tax Credit on your Form 540, enter the amount used to calculate the College Access Tax Credit on line 11, column B.

Charitable contribution deduction disallowance – California disallows a charitable contribution deduction to an educational organization that is a postsecondary institution or to the Key Worldwide Foundation to a taxpayer who meets all of the following:

They are charged as a defendant in any of several specified criminal complaints as listed in R&TC Section 17275.4.
There is a final determination of their guilt with regard to a violation of any offense arising out of that criminal complaint.
There is a finding that they took the deduction unlawfully.

For more information, see R&TC Section 17275.4. Enter the amount of this deduction on line 11, column B.

Line 12 – Other than by cash or check

Charitable conservation easem*nt contributions – Federal law now disallows a deduction for charitable conservation easem*nt contributions when the amount of the contribution exceeds 2.5 times the sum of each partner's relevant basis in the partnership. If you have a disallowance that was made strictly due to the SECURE 2.0 Act of 2022, subject to guidance included in FTB Notice 2023-02, you may be able to include the disallowed deduction for purposes of calculating California net income. For more information on the allowance of the deduction for charitable conservation easem*nt contributions for California income tax purposes, get FTB Notice 2023-02. If it is a valid deduction for California income tax purposes, figure the difference between the amount allowed using federal law and the amount allowed using California law. Enter the difference on line 12, column C.

They are charged as a defendant in any of several specified criminal complaints as listed in R&TC Section 17275.4.
There is a final determination of their guilt with regard to a violation of any offense arising out of that criminal complaint.
There is a finding that they took the deduction unlawfully.

For more information, see R&TC Section 17275.4. Enter the amount of this deduction on line 12, column B.

Line 13 – 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 on line 13, column C.

Carryover deduction of appreciated stock contributed to a private foundation prior to January 1, 2002 – If deducting a charitable contribution carryover of appreciated stock donated to a private operating foundation prior to January 1, 2002, and the fair market value allowed for federal purposes is larger than the basis allowed for California purposes, enter the difference on line 13, column B.

Line 15 – Casualty or Theft Loss(es)

Under federal law, the personal casualty and theft loss deduction is suspended, with exception for personal casualty gains. Federal law allows a deduction for personal casualty and theft loss incurred in a federally declared disaster. California does not conform.

California allows personal casualty and theft loss and disaster loss deductions. If you have personal casualty and theft loss and/or disaster loss, complete another federal Form 4684, Casualties and Thefts, using California amounts. Enter the difference between the federal and California amount in column B or column C.

Line 16 – Other Itemized Deductions

Unreimbursed impairment-related work expenses – If you completed federal Form 2106, prepare a second set of forms reflecting your employee business expense using California amounts (i.e., following California law). Include your entertainment expenses, if any, on line 5 of federal Form 2106 for California purposes.

Generally, California law conforms with federal law and no adjustment is needed. However, differences occur when:

Assets (requiring depreciation) were placed in service before January 1, 1987. Figure the depreciation based on California law.
Federal employees were placed 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 federal Form 2106, line 10 and the form completed using California amounts. Enter the difference between the federal and California amount in column B or column C.

Gambling losses – California lottery losses are not deductible for California. Enter the amount of California lottery losses included in line 16, column A on line 16, column B.

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 included in line 16, column A on line 16, column B.

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, no deduction or credit is allowed.

Social security benefits are not taxable by California and the repayment would not qualify for claim of right deduction or credit. If you deducted the repayment of Social Security benefits on your federal tax return, enter the amount of the federal deduction on line 16, column B.

If you claimed a credit for the repayment on your federal tax return and are deducting the repayment for California, enter the allowable deduction on line 16, column C.

If you deducted the repayment on your federal tax return and are taking a credit for California, enter the amount of the federal deduction on line 16, column B. To help you determine whether to take a credit or deduction, see the Repayment section of federal Pub. 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations. If you choose to take the credit instead of the deduction for California, add the credit amount on line 78, the total payment line, of Form 540. To the left of the total, write “IRC 1341” and the amount of the credit.

Line 19 through Line 22 – Job Expenses and Certain Miscellaneous Deductions

Under federal law, the deduction for miscellaneous itemized deductions subject to the 2% floor is suspended. California does not conform.

Line 19 – Unreimbursed Employee Expenses

Prepare federal Form 2106 reflecting your employee business expense using California amounts (i.e., following California law). Include your entertainment expenses, if any, on line 5 of federal Form 2106 for California purposes.

Enter the amount from line 10 of federal Form 2106 on line 19.

Line 20 – Tax Preparation Fees

Enter the fees you paid for preparation of your tax return, including fees paid for filing your return electronically. If you paid your tax by credit or debit card, include the convenience fee you were charged on line 21 instead of this line.

Line 21 – Other Expenses

Enter the total amount you paid to produce or collect taxable income and manage or protect property held for earning income.

List the type of each expense next to line 21 and enter the total of these expenses on line 21. If you are filing a paper return and you cannot fit all your expenses on the line next to line 21, attach a statement showing the type and amount of each expense.

Examples of expenses to include on line 21 are:

Certain legal and accounting fees.
Custodial fees (for example, trust account).
Casualty and theft losses of property used in performing services as an employee from federal Form 4684, line 32 and line 38b, or federal Form 4797, line 18a.
Deduction for repayment of amounts under a claim of right if $3,000 or less.

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. If the amount you repaid is less than $3,000, the deduction is subject to the 2% AGI limit for California purposes. If you are deducting the repayment for California, enter the allowable deduction on line 21.

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

Line 27 – Other Adjustments

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 line 27.

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 line 27.

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 line 27.

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 line 27.

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 line 27.

Line 29 – California Itemized Deductions

Is the amount on Form 540, line 13 more than the amount shown below for your filing status?

Single or married/RDP filing separately	$237,035
Head of Household	$355,558
Married/RDP filing jointly or qualifying surviving spouse/RDP	$474,075

NO	Transfer the amount from line 28 to line 29. Do not complete the Itemized Deductions Worksheet.
YES	Complete the Itemized Deductions Worksheet at the end of this line instructions.

Note:

If married or an RDP and filing a separate tax return, you and your spouse/RDP must either both itemize your deductions (even if the itemized deductions of one spouse/RDP are less than the standard deduction) or both take the standard deduction.
Also, if someone else can claim you as a dependent, claim the greater of the standard deduction or your itemized deductions. See the instructions for “California Standard Deduction Worksheet for Dependents” within 540 Booklet to figure your standard deduction.

Itemized Deductions Worksheet

Amount from Schedule CA (540), Part II, line 28.
Add the amounts on federal Schedule A (Form 1040), line 4, line 9, and line 15 plus any gambling losses included on line 16, if applicable.
Subtract line 2 from line 1.
If the result is zero, STOP. Enter the amount from line 1 on Schedule CA (540), Part II, line 29.
Multiply line 3 by 80% (.80).
Amount from Form 540, line 13.
Enter the amount from line 29 instructions for your filing status.
Subtract line 6 from line 5.
If the result is zero or less, STOP. Enter the amount from line 1 on Schedule CA (540), Part II, line 29.
Multiply line 7 by 6% (.06).
Compare line 4 and line 8. Enter the smaller amount here.
Total itemized deductions. Subtract line 9 from line 1. Enter the result here and on Schedule CA (540), Part II, line 29.

Line 30 – Amount from Line 29 or Standard Deduction

If your filing status is married/RDP filing separately and your spouse itemizes, enter the amount from line 29 (even if the standard deduction is larger).

Franchise Tax Board Privacy Notice on Collection

Our privacy notice can be found in annual tax booklets or online. Go to ftb.ca.gov/privacy to learn about our privacy policy statement, or go to ftb.ca.gov/forms and search for 1131 to locate FTB 1131 EN-SP, Franchise Tax Board Privacy Notice on Collection – Aviso de Privacidad del Franchise Tax Board sobre la Recaudación. To request this notice by mail, call 800-338-0505 and enter form code 948 when instructed.