Question

What portion of Net Capital Gain should you elect to include in investment income for California state taxes?

Forum|Forum|5 years ago
May 26, 2020
2 replies
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From TurboTax Help:

“The amounts shown on the screen transferred from your federal Investment Interest Expense Worksheet (Form 4952). They represent capital gain, including net capital gain from the disposition of property held for investment, that you elected to include in federal investment income.

If you want to change the amount of net capital gain for California investment income, simply enter that amount, keeping in mind that it cannot be more than the net gain amount shown.

Generally, investment income does not include net capital gain from the sale or exchange of property held for investment. However, you may elect to include all or part of these gains in investment income. You must make the election no later than the due date of your California return. Once made, the election may not be revoked without the consent of the Franchise Tax Board.”

Comments and questions:

I did not ‘elect to include’ anything in ‘federal investment income’. I entered details of a stock sale, and that was it. I had no choice in the matter.

How do I determine the proper amount (if any) to include in California investment income?

What criteria should be used in making this determination?

L

lostarky2020

For CA tax experts: I have these same questions for my 2020 CA tax return. I've searched the instructions for Form 540 . The only references to the term "investment income" pertain to children with investment income. The term "net capital gain" doesn't appear anywhere in the text of the instructions. Why is TurboTax presenting this option to make an election that isn't described in the instructions for Form 540?

AmyC

CA mostly matches up with the federal. CA does not allow a carryback loss like the federal government, which would require an altering of your CA taxable investment gains.

If you have never elected to have a carryback loss and amended prior federal return to account for a carryback loss, you would not be affected.

CA taxes all income as ordinary income, there is no separate short term, or long term rate.

@lostarky2020

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L

lostarky2020

Thank you for responding to this question. It would be lovely if you could work with Turbotax to make the state tax program clearer and better for next year! 🙂