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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
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Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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California NOL 3805V MTI calculation seems to be double charging

Resolved Question:

California NOL 3805V MTI calculation seems to be double charging me for capital loss deduction. What am I doing wrong?

CA 3805V, Part II (MTI), line 1: Taxable income: My calculation comprises:
+ IRA withdrawal (early distribution)
+ dividend inc
- biz loss
- capital loss deduction ($3000)
- CA NOL carryover from prior years
- CA itemized deductions

Note: This means my capital loss carryover has already been reduced by $3000.

Line 2 removes the capital loss deduction from the total, BUT WITHOUT PUTTING IT BACK IN MY CAPITAL LOSS CARRYOVER, so I'm still losing that. Line 4 then removes the NOL carryover from the total. This leaves:
+ IRA withdrawal (early distribution)
+ dividend inc
- biz loss
- CA itemized deductions

The sum of these (line 5) is, effectively, net income less deductions. Seems like appropriate taxable (prior to applying NOL carryover) to me. In Part III, the value from line 5 is used to count against NOL carryover (I think).

The problem is this reduces my capital loss carryover by $3000 AND then adds that amount back in to my income so I'm charged again for it in reduction of my NOL carryover.

What am I missing? I've looked at the resulting NOL and capital loss reductions, and they total $3000 more than line 5.

Thanks.

--Dan
Submitted: 3 years ago.
Category: Tax
Expert:  Arthur Rubin replied 3 years ago.

Arthur Rubin :

It seems to me that those calculations are merely noting that a (non-business) capital loss isn't allowable for the calculation of "business income" for the purpose of the NOL carryforward.

Arthur Rubin :

I'm going to be heading out shortly (3:15 pm PST). I should be back in 4-6 hours. If you can provide more details about what's on the form, it would be appreciated.

Customer:

NOL is a actually an individual concept (just reading IRS Pub 536), though it most often comes into play through a business loss. (It can also be disaster loss, etc.)

Customer:

Thus, the calculation is looking at things like personal income and deductions, rather than just business ones. The Sch C results are just one part of it.

Customer:

Not sure if the formatting was lost in my original submission (JustAnswer has kept it before, but what I'm seeing on the screen of my original submission is one big paragraph). So, I'll copy the calculation columns below:

Customer:


CA 3805V, Part II (MTI), line 1: Taxable income: My calculation comprises:

+ IRA withdrawal (early distribution)

+ dividend inc

- biz loss

- capital loss deduction ($3000)

- CA NOL carryover from prior years

- CA itemized deductions

Customer:


Note: This means my capital loss carryover has already been reduced by $3000.

Customer:


Line 2 removes the capital loss deduction from the total, BUT WITHOUT PUTTING IT BACK IN MY CAPITAL LOSS CARRYOVER, so I'm still losing that. Line 4 then removes the NOL carryover from the total. This leaves:

+ IRA withdrawal (early distribution)

+ dividend inc

- biz loss

- CA itemized deductions

Customer:


The sum of these (line 5) is, effectively, net income less deductions. Seems like appropriate taxable (prior to applying NOL carryover) to me. In Part III, the value from line 5 is used to count against NOL carryover (I think).

Customer:


The problem is this reduces my capital loss carryover by $3000 AND then adds that amount back in to my income so I'm charged again for it in reduction of my NOL carryover.

Customer:

Maybe the botXXXXX XXXXXne is that, if I look at my NOL and capital loss reductions, they total $3000 more than line 5, which is thus $3000 more than I believe I should be taxed on.

Customer:

(I'm OK to use the actual dollar amounts, as it may be clearer, if JustAnswer doesn't make the response public.)

Customer:

(The part I'm referencing is p3 of http://www.ftb.ca.gov/forms/2010/10_3805v.pdf.)

Arthur Rubin :

The California Capital Loss Carryover Worksheet (in the Schedule D instructions) seems to reinclude the $3000 in the carryover if taxable income, disregarding the loss, is still negative. I believe line 5 of the worksheet would be negative, so the entire amount of line 6 (Schedule D line 8) is available for carryover.

Arthur Rubin :

You can request the question be locked, if the specific dollar amounts seem to be helpful, but I think I've found where the $3000 goes.

Customer:

That's it! Thanks. I find it challenging to follow the data trail through their forms.

Customer:

I'd somehow also misread the cap loss carryover, and thought I'd seen it reduced by $3000, which it's not. Who knows where I went wrong (except trying to check it Sunday night after 2 days working on taxes). Thanks again.

Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1261
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
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