2023 CA Counselor Reference Manual

In three other areas, California may calculate income differently from the federal return.

Inherited Property Basis Difference (page 50)

• For inherited property, the CA basis is always the fair market value (FMV) at date of death.
• The federal basis for property inherited in 2010 (and sold during the tax year) may be different from FMV; this will be shown on the 2010 Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent (instructions). If the basis is not FMV, the return is out-of-scope.

IRA Basis Difference

• Note: For the federal return, the IRA basis recovery is on Form 8606 Part I.
• There may be a basis difference for CA as shown in the table below.
• The taxpayer must have records showing the amount contributed for each of these years and the amount deducted for federal and CA, if any.
• Without records, there will be no adjustment of the taxable IRA distribution.
• Generally, CA basis in excess of federal basis is applied to reduce the amount of taxable IRA distribution until CA basis is the same as federal basis.

• Thereafter, no further adjustment would be needed as CA follows federal IRA basis recovery rules.

• FTB Pub 1005 has detailed instructions and worksheets.

Capital Loss Carryover (CA Schedule D)

• Capital loss carryover amounts can vary between federal and CA - see page 52 for how to determine this, and how to handle it.

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