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Tax Topic CA 4 - Renting or Selling California Property

You are not in a registered domestic partnership if you have never entered into a registered domestic partnership, you filed a Notice of Termination of Domestic Partnership with the Secretary of State and the six-month waiting period for the notice to become final has passed or your registered domestic partnership was annulled and you did not enter into another registered domestic partnership after the annulment.

Effective for taxable years beginning on or after January 1, 2007, RDPs under California law must file their California income tax returns using either the married/RDP filing jointly or married/RDP filing separately filing status. If you are an RDP, you may qualify to use the head of household filing status if you are in the process of ending your relationship and you meet the requirements to be considered not in a registered domestic partnership.

You were not in a registered domestic partnership if your registered domestic partnership was legally terminated under a final decree of dissolution. Neither a petition for termination nor an interlocutory decree of termination is the same as a final decree. Until the final decree is issued, an RDP remains in a registered domestic partnership.

You must be entitled to claim a dependent exemption credit for your parent to be head of household. That is your parent must meet the requirements of a qualifying relative, you must have paid more than half the cost of keeping up a home that was your parent's main home for the entire year and your parent's main home could have been his or her own home or any other living accommodation.

In meeting the residency test, a temporary absence may be due to illness, for education, business, vacation or military service, or for incarceration.

To qualify for head of household filing status, your qualifying relative's gross income must be less than the federal exemption amount for the year in question.

If two or more taxpayers including a parent claim the same child as a qualifying child for a particular tax year, the person shall be treated as the qualifying child of the taxpayer who is a parent of the person or (if none of the taxpayers is a parent) the taxpayer with the highest adjusted gross income for the taxable year.

For 2011, you may file married/RDP filing jointly if you were never married and never entered into a registered domestic partnership, your spouse/RDP died in 2011 and you did not remarry or your spouse?RDP died in 2012 before you filed a 2011 tax return.

A registered domestic partner is a person who has filed a Declaration of Domestic Partnership with the California Secretary of State.

To be head of household, you must provide more than half of a person's total support during the calendar year to meet the support test. To determine whether you have provided more than half the support, compare the amount you contributed for the person's support to the entire amount of support the person received from all sources.

You are considered to have chosen to treat your nonresident alien spouse/RDP as a resident alien if you and your nonresident alien spouse/RDP filed a joint return in a previous year, you chose to treat your nonresident alien spouse/RDP as a resident so you could file the joint return and you have not revoked that choice by the extended due date for filing the return at issue.

I was married at the end of the year. Can someone other than my child qualify me for the Head of Household filing status? No. Because you were married.

	A. (10 points) Pub 1540 pg 14 (5 mins)
	B. Yes. As long as that person is not older than you. (0 points)
	C. Yes. Your spouse can qualify you for the Head of Household filing status. (0 points)
	D. None of the above. (0 points)

(10 points) | ___

Correct

Can you qualify for the Head of Household filing status if the person that qualifies you did not live with you during the year? Yes, if the person is your parent, he or she does not have to live with you to qualify you.

You were married at the end of the year. Can you qualify for the Head of Household filing status if you lived with your wife during part of the last six months of the year? No. Because you were married and therefore you do not meet certain requirements to be considered unmarried.

Can you qualify for the Head of Household filing status even though the qualifying person is not your relative? No. Only certain relatives can qualify you for the Head of Household filing status.

The Head of Household (HOH) filing status gives you the benefit of a lower tax and a higher standard deduction that the that of Single or Married Filing Separately filing status.

You paid $5,100 in child care, you are single and earned $28,000 for the entire year, and you have one qualifying child. Your child and dependent care expenses credit for tax year 2011 is $420.

You want to file your tax return and have no tax liability. If you claim the child and dependent care expenses credit, would you still get a refund for California based on your Child and dependent Care expenses credit? No, the amount of credit is limited to the amount of tax liability and is non-refundable.

Juan and Maria Escobedo are married and keep up a home for their two pre-school children. In tax year 2011, they claimed their children as dependents. Juan earned $25,200 and Maria earned $8,200. They paid $5,900 in work related child care expenses. Their credit is $738.

To claim the Child and Dependent Care Expenses Credit for California, you must complete and attach to your California tax return FTB Form 3506.

In tax year 2011, if your gross income is $45,000 and your federal child and dependent care expenses credit amount was $480, then your California Credit is $206.

For Federal the child and dependent care expenses credit is a non-refundable credit and for California the credit is also non-refundable.

The percentage of the federal Child and Dependent Expenses Care credit that is allowed for California for taxpayers who earned more than $100,000 in 2011 is 0%.

In tax year 2011, to qualify for the California child and dependent care expenses credit, your federal adjusted gross income must be less than $100,000.

In tax year 2011, if you are head of household and you would like to qualify for renter's credit, you would not qualify if your income is over $71,318.

If for more than half of the year, you lived in the home of a parent, foster parent, or legal guardian in 2011 who can claim you as a dependent, then you do not qualify for the renter's credit.

The non-refundable renter's credit qualification record must be kept with your records; therefore, you should not mail it.

To qualify for Renter's credit, you must have paid rent for at least 6 months of the tax year and your principal residence must have been in California.

If your filing status was married filing separate, you can still claim the California renter's credit.

If a single employer withheld California State Disability Insurance (SDI) from your wages at more than 1.2% of your gross wages, contact the employer for refund. You cannot claim a credit and your worked for only one employer and that employer over withheld SDI.

You may be entitled to claim a credit for excess SDI on Form 540/540A if you had two or more employers during 2011, you received more than $93,316 in wages and the amounts of SDI withheld appear on your forms W2.

If you discover that you made an error on your California income tax return after you filed it, use Form 540X to correct your return.

For purposes of claiming the California Child and Dependent Care Expenses Credit, if your child turns age 13 during the year the child is a qualifying person only for the part of the year he or she was 12 years old.

In tax year 2011, my wife did not work all year because she was not able to care for herself for the entire year. I worked and earned $21,050. We have one qualifying child for the Child and Dependent care credit. We paid $2,000 for child care. We can qualify for $310 credit.

You are single and only paid rent for one month in 2011. You cannot qualify to claim the renter's credit. You must have paid rent for at least 6 months in order to qualify for the renter's credit.

If you do not e-file your tax return, you will not receive your refund check as fast as if you e-filed.

If there is no difference between your federal and California income or deductions, do not file a Schedule CA (540).

A qualifying individual for the Child and Dependent Care Credit is a dependent of the taxpayer under 13 years of age, a dependent of the taxpayer who is physically or mentally unable to care for him or herself or a spouse of the taxpayer who is physically or mentally unable to care for him or herself.

One of the requirements to qualify to claim the Child and Dependent Care Credit for California is that you paid for care so you (and your spouse/RDP) could work or look for work.

Your must pay 100% of the amount owed by April 17, 2012 to avoid interest and penalty charges.

You qualify for the Nonrefundable Renter's Credit if you rented a property for more than half the year that was not exempt from California property tax in 2011.

All domestic partners should file jointly, separately or as head of household (if meet the requirements) under the new law.

You may not claim the Credit for Dependent Parent if you used the single, head of household, qualifying widow (er), or married/RDP filing jointly filing status. Claim this credit only if you were married/or an RDP at the end of 2010 and you used the married/RDP filing separately filing status, your spouse/RDP was not a member of your household during the last six months of the year or if you furnished over one-half the household expenses for your dependent mother's or father's home, whether or not she or he lived in your home.

You may be entitled to claim a credit for excess SDI (or VPDI) only if more than 1.2% of your wages was over withheld from more than one employer.

The 2011 SDI (or VPDI) limit is $93,316.

If you and your spouse/RDP paid joint estimated taxes but are now filing separate income tax returns, either of you may claim the entire amount paid.

Attach a doctor's statement to the back of Form 540/540A indicating your or your spouse/RDP are visually impaired only the first time you file a tax return to claim the blind exemption credit.

What if you can't file by April 17, 2012, and think you you owe tax, estimate the amount of tax owed by completing Form 3519.

	A. (10 points) 540/540A inst. pg 21 (5 mins)
	B. Do not file until you are ready to file. (0 points)
	C. You can avoid the penalty or interest by filing on time even if you don't send the money. (0 points)
	D. Complete your tax return by October 17, 2011. (0 points)

(10 points) | ___

Correct

If all your W-2 forms were not received by January 31, 2012, file your return only with the W-2 forms you did receive.

	True (0 points)
	False (10 points)

(10 points) | ___

Correct 540/540A inst. pg 21 (5 mins)

You never received a Form W-2 and you asked your employer for one and employer refuses to issue a form, you should complete form FTB 3525 with your wage and withholding information.

If you didn't itemize deductions on your federal tax return it is possible to itemize deductions on your California tax return.

The Head of Household filing status is for taxpayers who are either unmarried and not an RDP or meet the requirements to be considered unmarried or considered not in a registered domestic partnership and maintain a home for a relative who lived in them for more than half the year.

An eligible foster child is a child for head of household purposes is a child placed with you by an authorized placement agency or by a judgment, decree, or other order of a court of competent jurisdiction.

Generally, if two or more people keep up the same home, only one of the people could pay more than half the costs and qualify for the head of household filing status. When two or more families occupy the same dwelling, each family may be treated as keeping up a separate home if each family maintains separate finances and neither family contributes to the support of the other family.

The taxpayer who provides more than half the cost of maintaining a separate home is treated as keeping up that separate home. To determine whether you paid more than half the cost of keeping up your home do not include costs of clothing and vacations, costs for education and transportation or costs for medical treatment and life insurance.

If someone lived with you for six months this does means that the person lived with you more than half the year for head of household purposes.

If you have joint custody of your child, to qualify for head of household filing status, you must still meet all the requirements for the filing status, must have a child that must have lived with you for more than half the year, and have paid more than half the cost of keeping up your home.

If you were married as of the last day of the year, and you did not live with your spouse at any time during the last six months of the year, to determine how many days your home was your qualifying person's main home, add together half the number of days that you, your spouse, and your qualifying person lived together in your home, and add together all of the days that you and your qualifying person lived together in your home without your spouse.

If you were married as of the last day of the year and you lived with your spouse at any time during the last six month of the year, you cannot qualify for the head of household filing status.

You are considered to have chosen to treat your nonresident alien spouse/RDP as a resident alien if you and your nonresident alien spouse/RDP filed as joint return in a previous year, you chose to treat your nonresident alien spouse/RDP as a resident so you could file the joint return and you have not revoked the choice to treat your nonresident alien spouse as a resident by the extended due date for filing the return at issue.

Residents of California are taxed on all income, even income from sources outside California.

For California, a resident is any individual who is in California for other than a temporary or transitory purpose or is domiciled in California, but outside California for a temporary or transitory.

The underlying theory of residency is that you are a resident of the place you have the closest connections.

You and your spouse are California residents. You accept a contract to work in South America for 16 months. You lease an apartment near the job site. Your contract states that your employer will arrange your return to California when your contract expires. Your spouse and children will remain in California residing in the home you own. As a result, you are taxed on income from all sources, including income from South America.

You are a resident of California. You accept a 15-month assignment in Saudi Arabia. You put your personal belongings, including your automobile, in storage in California. You have a California driver's license and are registered to vote in California. You maintain bank accounts in California. In Saudi Arabia, you stay in a compound provided for you by your employer, and the only ties you establish there are connected to your employment. Upon completion of your assignment, you will return to California. As a California resident, your income from all sources is taxable by California, including the income that you earned for your assignment in Saudi Arabia.

A tax treaty between the U.S. Government and a foreign country may exempt some types of income from federal taxation. Generally, unless the treaty specifically excludes the income from taxation by California, the income is taxable to California.

The Franchise Tax Board does not issue tax clearance certificates for individuals in the manner that a federal income tax clearance is issued.

California does not allow a foreign tax credit or a foreign earned income exclusion just like federal.

The wages of nonresident flight personnel (e.g. pilot, copilot, flight attendants) are taxable by California if more than 50% of the individual's schedule flight time is in California.

A merchant seaman who is in California only because this state is a port-of-call and who maintains no other contact or connections with this state, is not a California resident.

There are many factors you can use to help you determine your residency status. For example, the location of your principal residence and location of your spouse and children is a factor to consider. The state in which you are registered to vote, where your license was issued and where your vehicles are registered and the location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member are very important factors.

Any individual who is a California resident for part of the year and a nonresident for part5 of the year is a part-year resident.

A safe harbor is available for certain individuals leaving California under employment-related contracts. The safe harbor provides that an individual domiciled in California who is outside California under an employment-related contract for at least 546 consecutive days will be considered a nonresident unless the individual has intangible income exceeding $200,000 in any taxable year during which the employment-related contract is in effect or the principal purpose of the absence from California is to avoid personal income tax.

Students who are residents of California leaving to attend an out-of-state school would not automatically become nonresidents and students who are nonresidents of California coming to this state to attend a California school would not automatically become residents.

You lived and worked in Kansas. You retired in Kansas and received your first pension check on January 1, 2011. You moved permanently to California on July 1, 2011. You pension income received beginning July 1, 2011 is taxable by California because California residents are taxed on all income, regardless of source.

It is important for California income tax purposes that you make an accurate determination of your residency status. Residency is primarily a question of fact to be determined by examining all the circumstances of your particular situation.

You are a resident of Nevada. You own residential rental property located in California. Your property has always shown a loss. You sold the property at a gain. Although you are a resident of Nevada, the gain on the sale is taxable in California because the property is located in California.

You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another one. A change of domicile requires abandonment of your prior domicile, physically moving to and residing in the new locality and the intent to remain in the new locality permanently.

Maintain separate property separately. If the property or the income from the property is used for community purposes, or commingled, it could lose its separate property character, overriding any agreements. Separate property is property owned separately by the husband or wife before marriage or registering as a domestic partnership, property received separately as gifts or inheritances or property that is declared separate property in a valid agreement.

If you paid taxes to California and another state on the same income, you may qualify for a tax credit for taxes paid to another state.

_Beginning January 1, 2002, California taxes i nstallment gains that a nonresident received from the sale of property based on where the property is sourced.

California does taxes a California resident on installment proceeds received from the sale of property sourced outside California that the taxpayer sold before becoming a California resident.

Use Form FTB 3805E to report income from casual sales of real or personal property other than inventory if you will receive any payments in a taxable year after the year of sale.

Use form FTB 3805E even if you don't elect to report the sale of real estate in the installment method.

	True (0 points)
	False (10 points)

(10 points) | ___

Correct Form FTB 3805E Inst. pg 1 (5 minutes)

Generally, if you sell depreciable property to a related person, you may not report the sale using the installment method.

You must pay interest on the deferred tax from certain installment obligations. The interest applies to any installment obligation arising from the disposition of any property under the installment method if the property had a sale price over $150,000 and the aggregate balance of all non nondealer installment obligations is more than $5 million.

Form FTB 3801 is filed by individuals, estates, trusts, and S corporations that have losses (including prior year unallowed losses) from passive activities.

You do not have to file form FTB 3801 if you have a net loss from rental real estate activities that is fully deductible under the special allowance for rental real estate and you have no other passive activities.

A part-year resident must compute any suspended passive losses as if they were a California resident for all prior years and as if they were a nonresident for all prior years.

You must pay interest on the deferred tax from all installment obligations arising from the disposition of timeshares and residential lots.

California law does not conform to the tax incentives related to "renewal communities,"

Individuals, estates, trusts, and S corporations use Form FTB 3801, Passive Activity Loss Limitations, to figure allowable California passive activity loss (PAL) and adjustment you must make to account for any difference between your California PAL and your federal PAL.

The PAL rules apply as if the S corporation were an individual. For example, $25,000 of your losses from passive activities may be used to offset other income from active participation in rental real estate activities.

For California purposes, all rental activities are passive activities.

Trusts do not qualify for the $25,000 special allowance for rental real estate with active participation.

Withholding is required when California real estate is sold or transferred. The amount withheld from the seller or transferor is sent to the FTB as required by the California Revenue and Taxation Code.

California real estate withholding is not required if the property is being foreclosed upon, the transferor is a bank acting as a trustee other than a trustee of a deed of trust or the total sales price is $100,000 or less.

The following must withhold upon a sale of California real estate and must complete Form FTB 593-C.

	A. The United States and any of its agencies or instrumentalities. (0 points)
	B. A state, a possession of the United States, the District of Columbia, or any of its political subdivisions or instrumentalities. (0 points)
	C. A possession of the United States such as Puerto Rico or Guam. (0 points)
	D. None of the above. (10 points)

(10 points) | ___

Correct Form FTB 593-C-E Inst. pg 2 (5 minutes)

Real estate withholding is a prepayment of estimated income tax due form the gain on a sale of California real estate.

Although the law requires the buyer to withhold, the buyer can request the Real Estate Escrow Person (REEP), to do the withholding.

California withholds on the sale of real estate to ensure payment of income tax owed on the taxable gain from the sale.

The payer should instruct the seller to complete and sign Form 593-C and return it to the REEP by the close of escrow.

If the seller of California real estate does not return the completed Form 593 and Form 593-C to you, the buyer, by the close of escrow, you are required to withhold 3 1/3 % of total sales price.

For installment sales occurring on or after January 1, 2009, buyers are required to withhold on the principal portion of each installment payment if the sale of California real property is structured as an installment sale.

Do not send Form 593-C to the FTB. The REEP must provide it to the FTB upon request and must retain this form for a minimum of 5 years.

Use Form 593-C, Real Estate Withholding Certificate to determine whether you qualify for a full or partial withholding exemption from California withholding.

Qualifying for an exemption from withholding or being withheld upon does not relieve you of your obligation to file a California income tax return and paying the tax due on the sale of California real estate.

Sellers who are on title for incidental purposes are co-signers on title, parents co-signed to help their child qualify for the loan or family members on title to receive property upon the owner's death.

There are certifications that fully exempt withholding from California sales of real estate. The home being the principal residence is one of these. To qualify as your principal residence, you (or the decedent) generally must have owned and lived in the property as your main home for at least two years during the five-year period ending on the date of sale.

You have a loss or zero gain for California income tax purposes when the amount realized in less than or equal to your adjusted basis.

As long as you have a net loss or zero gain and do not receive any proceeds from the sale or you are selling your property for less than what it is worth, you may certify that you have a net loss or zero gain.

	True (0 points)
	False (10 points)

(10 points) | ___

Correct Form FTB 593-C Instructions pg 4 (5 minutes)

The property is being involuntarily or compulsorily converted when the California real property is transferred because it was (or threatened to be) seized, destroyed, or condemned and the transferor (seller) intends to acquire property that is similar or related in service or use in order to be eligible for non-recognition of gain for California income tax purposes.

Partnerships and LLCs are required to withhold on nonresident partners and members. Withholding is not required if the title to the property transfered is recorded in the name of a California partnership or it is qualified to do business in California, the title to the property transferred is in the name of an LLC, and the LLC is classified as a partnership for federal and California income tax purposes or the title to the property transferred is in the name of an LLC, and the LLC is not a SMLLC that is disregarded for federal and California income tax purposes.

If an SMLLC is classified as a corporation for federal and California income tax purposes, then the seller is considered a corporation for withholding purposes.

If the seller receives money or other property (in addition to property that is a part of the like-kind exchange) exceeding $1,500 from the sale, the withholding agent must withhold.

Include the amounts paid for any items that increase the basis of the property, such as settlement fees and closing costs you incurred when you bought the property, the amount you paid for special assessments for items such as water connections, paving roads, and building ditches or the cost of restoring damaged property from a casualty loss, or costs of extending utility service lines to the property.

California allowed a credit against net tax equal to the lesser of 5% of the purchase price of the qualified principal residence of ten thousand dollars. The credit is for the purchase of only one qualified principal residence with respect to any taxpayer, the credit shall be claimed only on a timely filed original tax return, including returns filed on extension and will be applied in equal amounts over the three successive taxable years beginning with the taxable year in which the purchase of the qualified principal residence is made (maximum of $3,333 per year).

To claim the California New Home Credit, you must have received a Certificate of Allocation from the FTB to claim the credit, the amount you may claim for each year is shown on your Certificate of Allocation and if you are married/RDP filing a joint return, and each of you received a separate Certificate of Allocation for the property you are now living in, combine the amounts from both certificates.

Question 119 of 130

If you were married/RDP when you purchased the home and only one spouse/RDP moves out before the end of two full years, you must repay all of the tax.

	True (0 points)
	False (10 points)

(10 points) | ___

Correct Form FTB 3528 Inst. pg 1 (5 minutes)

If the taxpayer's New Home/First-Time buyer credit for the taxable year is $3,333, and the tax liability is $300, the taxpayer may only use $300 of the credit and the unused credit may not be refunded or carried over to the following year.

Taxpayers who qualified for the California New Home Credit are not required to reserve a tax credit prior to the close of escrow.

Each California New Home/First-Time Buyer Credit is the lesser of five percent of the purchase price of the qualified principal residence or ten thousand dollars.

Question 123 of 130

For the California First-Time buyer Credit, "First-Time Buyer", is an individual who did not have an ownership interest in a principal residence only within California during the preceding three-year period ending on the date of the purchase of the qualified principal residence.

	True (0 points)
	False (10 points)

(10 points) | ___

Correct Form FTB 3549 Inst. pg 3 (5 minutes)

The California New Home/First-Time Buyer Credit is subject to recapture, if you (or your spouse/RDP) do not live in the home, as yhour qualified principal residence, for two full years after the purchase.

If you were married/RDP when you purchased the home and both spouses/RDPs move out before the end of the two full years, the full amount of the New Home/First-Time Buyer Credit that reduced your California tax must be recaptured.

If the real estate escrow person does not notify the buyer of the California withholding requirements in writing, the penalty is the greater of $500 or 10% of the required withholding.

If the buyer or other withholding agent does not furnish complete and correct copies of Form 593 to the seller by the due date, the penalty is $50 per Form 593.

You must pay interest on the deferred tax from certain California installment obligations unless it is a disposition of farm property or to disposition of personal use property by an individual.

Individuals, estates, trusts, and S corporations use Form FTB 3801, Passive Activity Loss Limitations, to figure allocable California passive activity Loss (PAL) and adjustment you must make to account for any difference between your California PAL and your federal PAL.

If the taxpayer actively participated in rental real estate before death, you may use the $25,000 special allowance for rental real estate for two years.

Most forms are in Adobe Acrobat PDF format. You will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.

Tax Return filing situation 1:

Tax Return filing situation 2:

After you

Please Note: If you filled out the answers directly on this page, please print this page or write down the answers before you proceed to submit them by clicking on "Assignment" in step 2 above.

Refer to FTB 540/540A Booklet, FTB Publication 1540, FTB Publication 1031, FTB Booklet 593, FTB Form 593-C, FTB Form 593-I, FTB Form 3805E Instructions, FTB Form 3801 Instructions, FTB Form 3528 Instructions, FTB Form 3549 Instructions, and Form 1040 Instructions for a more detailed explanation.

Tax Topic CA 4 - Renting or Selling California Property

Question 119 of 130

Question 123 of 130

Copyright © 2012 [Hera's Income Tax School]. All rights reserved. Revised: 11/16/14

Copyright © 2012 [Hera's Income Tax School]. All rights reserved.
Revised: 11/16/14