Most income reported on your federal return automatically transfers to your California return. However, California does not conform to all federal tax laws. If California requires certain income to be treated differently, you may need to enter a California addition to income in this section.
Use the Additions to Income section to report California-specific income adjustments that increase California taxable income.
Most taxpayers will leave many of these fields blank. Income from your federal return transfers automatically to California. Only enter amounts in this section when you have a known California adjustment resulting from a difference between federal and California tax law, a California form, or a California worksheet calculation.
Program Entry
California Return → Additions to Income
Business Income (Loss)
Enter only the California adjustment amount related to business income or loss. Do not enter the total business income shown from your federal return.
You may need an adjustment if:
- You claimed depreciation differently for California purposes.
- California treats a deduction, expense, or depreciation item differently than federal law.
- You have a California-specific carryover amount.
- Federal and California rules treat the income or loss differently.
Common Example:
You claimed bonus depreciation on your federal return, but California does not allow the same depreciation deduction. The difference may create a California addition to income.
If you do not have a known California adjustment, leave this entry blank.
Rents and Royalties
Enter only the California adjustment amount related to rental or royalty income.
You may need an adjustment if:
- California depreciation differs from federal depreciation.
- You sold rental property and California basis differs from federal basis.
- A prior-year California adjustment affects the current year's rental activity.
Common Example:
A rental property's federal depreciation differs from California depreciation. The annual difference may create a California income adjustment.
If your rental activity is reported the same way for both federal and California purposes, no entry is generally required.
Farm Income (Loss)
Enter only the California adjustment amount related to farming activities.
You may need an adjustment if:
- California and federal depreciation differ.
- A federal farm deduction is not allowed by California.
- Prior-year California adjustments affect current-year farm income.
If there are no California-specific differences, leave this entry blank.
Cancellation of Debt (Forms 1099-C and 982)
Enter an amount only if California treatment of canceled debt differs from the federal treatment.
You may need an entry when:
- Debt was excluded from federal income but California does not allow the same exclusion.
- California recognizes taxable canceled debt income that was excluded federally.
Do not enter:
- The entire amount shown on Form 1099-C.
- Debt forgiveness income already properly reported and taxed on both returns.
If your federal and California treatment are the same, leave this entry blank.
Section 461(l) Excess Business Loss Adjustment
This entry applies to taxpayers affected by the federal Excess Business Loss Limitation.
You may need an entry if:
- Your federal return includes Form 461.
- Business losses were limited on your federal return.
- California calculates the limitation differently.
Most taxpayers will not have an adjustment in this section unless their return includes a Section 461(l) limitation.
Stock Options
Enter an adjustment only if California treatment differs from federal treatment.
This most commonly applies to:
- Incentive Stock Options (ISOs)
- Employee Stock Purchase Plans (ESPPs)
- Other employer stock compensation arrangements
Common Example:
The amount recognized for California purposes differs from the amount reported federally because of timing or basis differences.
If your federal and California treatment are the same, no adjustment is needed.
Federal Form 8853
Enter any California adjustment related to:
- Archer Medical Savings Accounts (MSAs)
- Long-Term Care Insurance Contracts
California does not conform to all federal Archer MSA rules. An adjustment may be required if:
- A federal deduction was allowed but not allowed by California.
- A federal exclusion differs from California law.
Most taxpayers will not have an entry in this section.
Digital Assets
Enter an amount only if a California adjustment is required for digital asset transactions.
Examples of digital assets include:
- Cryptocurrency
- Virtual currency
- NFTs
- Digital tokens
Most taxpayers will leave this field blank because digital asset income reported on the federal return generally transfers automatically to the California return.
Enter an amount only if you have a California-specific adjustment.
CA Schedule D Transactions Not Reported on Federal
Select Begin to enter a capital gain or loss transaction that:
- Must be reported for California purposes, and
- Was not reported on the federal return.
You may need to use this section when:
- A transaction must be reported for California purposes but was not reported on the federal return.
- A prior California adjustment creates a California-only gain or loss.
- California requires separate reporting of a transaction.
Enter:
- Description of property
- Date information (if requested)
- Proceeds (sales price)
- Cost basis
The program will calculate the California gain or loss based on the information entered.
CA 3885A (Depreciation) Transaction Adjustments
Do not change the California Depreciation Amount unless you have records or calculations showing the correct California depreciation for the asset.
Select Begin to review depreciation assets that may require a California adjustment.
California does not conform to all federal depreciation rules. As a result, the depreciation allowed for California purposes may differ from the depreciation claimed on your federal return.
You may select assets reported on:
- Schedule C (Business)
- Schedule E (Rental and Royalty)
- Schedule F (Farm)
After selecting the appropriate schedule:
- Select the asset you want to review or adjust for California depreciation purposes.
- Review the federal depreciation information.
- Enter the correct California Depreciation Amount for that asset.
What Do I Enter?
Enter the total depreciation amount that should be allowed for California purposes.
Important: The California Depreciation Amount will overwrite the California depreciation currently associated with the asset.
Do not enter:
- The difference between federal and California depreciation.
- The federal depreciation amount unless it is also the correct California amount.
Example
A depreciation asset shows:
- Federal Depreciation: $5,000
- Correct California Depreciation: $3,500
Enter $3,500 as the California Depreciation Amount.
The program will calculate any resulting California adjustment.
Common Reasons a California Depreciation Adjustment Is Needed
A California depreciation adjustment may be necessary when:
- Federal bonus depreciation was claimed.
- California uses a different depreciation method.
- The asset's California basis differs from its federal basis.
- Prior-year California depreciation adjustments affect the current year's depreciation calculation.
Notes
- If the California depreciation amount is the same as the federal depreciation amount, an adjustment is generally not needed.
- Enter the California depreciation amount, not the adjustment amount.
Other Additions
Use this section for California additions that are not reported elsewhere.
Enter:
- A description of the adjustment.
- The California addition amount.
Examples may include:
- California adjustments from a schedule or worksheet.
- California carryover adjustments from prior years.
- Other California-required additions not covered by the available categories.
- California adjustments from FTB publications or form
Do not use this section for income already reported elsewhere on the return.