The TaxACT program supports California Form 3801 Passive Activity Loss Limitations. This form may be used to figure the allowable California passive activity loss (PAL) and any adjustment that must be made to account for any difference between the California PAL and the federal PAL.

Per the California Instructions for Form FTB 3801 Passive Activity Loss Limitations, page 1:

General Information

In general, for taxable years beginning on or after January 1, 2010, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540 or 540NR), and the Business Entity tax booklets.

Material Participation in Real Property Business – IRC Section 469(c)(7)

Beginning in 1994, and for federal purposes only, rental real estate activities of taxpayers engaged in real property business are not automatically treated as passive activities. California did not conform to this provision. For California purposes, all rental activities are passive activities.

A Purpose (of Form 3801)

Individuals, estates, trusts, and S corporations use form FTB 3801, Passive Activity Loss Limitations, to figure both of the following:

• Allowable California passive activity loss (PAL).
• Adjustment you must make to account for any difference between your California PAL and your federal PAL.

Generally, California law is the same as federal law concerning PAL limitations. However, differences, such as the special treatment for real estate professionals (as described in General Information) may cause your California PAL to be different from your federal PAL.