TAXABLE YEAR ■ CALIFORNIA FORM 2018 Investment Interest Expense Deduction 3526 Attach to Form 540, Long Form 540NR, or Form 541. Name(s) as shown on tax return SSN, ITIN, or FEIN . 1 Investment interest expense paid or accrued in 2018. See instructions .........................................0 1 00 2 Disallowed investment interest expense from 2017 form FTB 3526, line 7. If zero or less, enter -0- ...................0 2 00 3 Total investment interest expense. Add line 1 and line 2......................................................... 3 00 4a Gross income from property held for investment (excluding any net gain from the disposition of property held for investment). See instructions............................................................................ 4a 00 4b Net gain from the disposition of property held for investment. See instructions ...........4b 00 4c Net capital gain from the disposition of property held for investment. See instructions......4c 00 4d Subtract line 4c from line 4b. If zero or less, enter -0- ......................................................... 4d 00 4e Enter all or part of the amount on line 4c that you elect to include in investment income. Do not include more than the amount on line 4b. See instructions ................................................................ 4e 00 4f Investment income. Add line 4a, line 4d, and line 4e ...........................................................4f 00 5 Investment expenses. See instructions ..................................................................... 5 00 6 Net investment income. Subtract line 5 from line 4f............................................................ 6 00 7 Disallowed investment interest expense to be carried forward to 2019. Subtract line 6 from line 3. If zero or less, enter -0- .............................................................................0 7 00 8 Investment interest expense deduction. Enter the smaller of line 3 or line 6. Form 541 flers, stop here and see instructions. All other flers, go to line 9 .............................................................0 8 00 9 Enter the amount from federal Form 4952, line 8.............................................................. 9 00 10 California investment interest expense deduction adjustment. Enter the difference between line 8 and line 9. See instructions....................................................................................0 10 00 General Information by an individual, estate, or trust on a loan • Your investment interest expense is not allocable to property held for investment may more than your investment income. In general, for taxable years beginning on or not be fully deductible in the current year. • You have no disallowed investment interest after January 1, 2015, California law conforms Net capital gain from the disposition of property expense from 2017. to the Internal Revenue Code (IRC) as of held for investment is excluded from investment January 1, 2015. However, there are continuing income when fguring the investment interest Specifc Line Instructions differences between California and federal limitation. However, taxpayers may elect to law. When California conforms to federal tax include in their investment income as much of Generally, California law for the investment law changes, we do not always adopt all of their net capital gain investment income as they interest expense deduction follows federal law. the changes made at the federal level. For choose, if they also reduce the amount of net Get the instructions for federal Form 4952, more information, go to ftb.ca.gov and search capital gain eligible for the special federal capital Investment Interest Expense Deduction, for for conformity. Additional information can gain tax rate. more information. Get federal Publication 550, be found in FTB Pub. 1001, Supplemental Investment Income and Expenses, to Guidelines to California Adjustments, the This form allows you to make a separate determine your investment interest expense instructions for California Schedule CA (540 California election to include net capital gain deduction if you have interest income or or 540NR), California Adjustments, and the investment income in the calculation of the expense attributable to a working interest in Business Entity tax booklets. investment interest limitation. However, oil or gas property or if you paid or accrued California taxes all income at the same rate. The instructions provided with California interest on a loan and you used the proceeds Consider the effect on your California tax of the loan for more than one purpose. tax forms are a summary of California tax before making a separate California election law and are only intended to aid taxpayers in or applying the federal election for California Line 1 – Investment Interest Expense preparing their state income tax returns. We purposes. Enter the investment interest paid or accrued include information that is most useful to the during the taxable year, regardless of when you greatest number of taxpayers in the limited B Who Must File incurred the indebtedness. Investment interest space available. It is not possible to include expense is interest paid or accrued on a loan all requirements of the California Revenue If you are an individual, estate, or trust and (or part of a loan) that is allocable to property and Taxation Code (R&TC) in the instructions. you claim a deduction for investment interest held for investment. Taxpayers should not consider the instructions expense, you must complete and attach form Include investment interest expense reported as authoritative law. FTB 3526 to your tax return. to you on Schedules K-1 (100S, 541, 565, or Exception: You do not have to fle form 568), Share of Income, Deductions, Credits, A Purpose FTB 3526 if all of the following apply: etc. Include amortization of bond premiums Use form FTB 3526, Investment Interest • Your only investment income was from on taxable bonds purchased after October 22, Expense Deduction, to fgure the amount of interest or dividends. 1986, but before January 1, 1988, unless you investment interest expense deductible for the • You have no other deductible expenses elected to offset amortizable bond premiums current year and the amount, if any, to carry connected with the production of interest or against the interest payments on the bond. A forward to future years. Interest expense paid dividends. taxable bond is a bond on which the interest is includible in gross income. ■ For Privacy Notice, get FTB 1131 ENG/SP. 7321183 FTB 3526 2018 ■ Investment interest expense does not include: • Acquisition of certain interests in a Include on form FTB 3526, line 5, the smaller • Qualifed residence interest. pass-through entity licensing intangible of either the investment expenses included • Interest expense that is properly allocable property. on Schedule CA (540), Part II, line 21; to a passive activity. See “Passive Also include on line 4a (or line 4b, if applicable) Schedule CA (540NR), Part III, line 21; or the Activities.” net passive income from a passive activity of a total on Schedule CA (540), Part II, line 25; • Interest expense that is capitalized, such publicly traded partnership, as defned in IRC Schedule CA (540NR), Part III, line 25. as construction interest subject to IRC Section 469(k)(2), investment income reported If you made adjustments to your miscellaneous Section 263A. to you on Schedules K-1 (100S, 541, 565, expenses on Schedule CA (540 or 540NR), • Interest expense related to tax-exempt or 568), and net investment income from an be sure to include the adjustments in the interest income under R&TC Section 17280. estate or trust. calculation. Property Held for Investment. Property held Line 4b If you reported investment expenses on a form for investment includes property that produces Enter your net gain from the disposition of or schedule other than federal Schedule A investment income (unless derived in the property held for investment. This is the (Form 1040), include those expenses when ordinary course of a trade or business). It also excess of total gains over total losses from the fguring investment expenses for line 5. includes property that produces gain or loss, disposition of property held for investment. Line 8 – Investment Interest Expense not derived in the ordinary course of a trade or When fguring this amount, include capital gain Deduction business, from the disposition of property that distributions from mutual funds. Form 541, California Fiduciary Income Tax produces these types of income or is held for Line 4c Return, flers should enter the amount from investment. Enter your net capital gain from the disposition line 8 on Form 541, line 10. All other flers However, it does not include an interest in a of property held for investment. This is the must complete line 9. passive activity. See “Passive Activities.” excess of your net long-term capital gain over At-Risk Activities. If any portion of the Property held for investment also includes an net short-term capital loss from the disposition deductible investment interest expense on interest in an activity of conducting a trade of property held for investment. Capital gain line 8 is attributable to an activity for which you or business in which you did not materially distributions from mutual funds are treated as are not at risk, complete federal Form 6198, participate and that is not a passive activity. long-term capital gains. At-Risk Limitations, (using California For