Itemized deduction for CA Taxes

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marg_srini
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Itemized deduction for CA Taxes

Post by marg_srini » Sun Apr 14, 2019 11:28 pm

Hello Bogleheads,

TT recommended to use Standard deduction for Federal and CA state. My friend uses a tax preparer and he was recommended to I have Standard deduction for Federal and Itemized for CA State return. Will this result in higher state refunds ? Under what conditions does this make sense ?

Thanks in advance.
Srini

mega317
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Re: Itemized deduction for CA Taxes

Post by mega317 » Mon Apr 15, 2019 12:03 am

It makes sense if your deductions fall below the standard deduction on your federal return, and above the standard deduction on state. California allows you to itemize on one and not the other; not all states allow this.

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CAsage
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Re: Itemized deduction for CA Taxes

Post by CAsage » Mon Apr 15, 2019 1:25 pm

Depending on the nature of your deductions, you might look into "bunching" them or itemizing on CA return every other year. For example, donate to charity in January of one year, and again December to deduct in one year, skip the next. And yes, fortunately CA allows you do itemize on the 540 return regardless of the IRS 1040. Note that the data goes on the 1040 Schedule A, but the tax software will ignore it as it will choose the larger of the Federal standard or the itemization.
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inbox788
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Re: Itemized deduction for CA Taxes

Post by inbox788 » Mon Apr 15, 2019 4:32 pm

https://www.ftb.ca.gov/forms/2018-Calif ... ions.shtml

I was wondering the same thing. What are the thresholds for itemizing CA taxes ($8802 for MFJ?)? And what items count and which help bring it over?

For federal taxes, the biggest items for me were income tax, property tax (now SALT capped at 10k), mortgage interest and charitable donations. Aside from lumping charitable donations ever few years, I don't expect to itemize my federal taxes. I was assuming same for state taxes, but there is a small window where sufficient property tax timing might yield years where one itemizes state and not federal.

123
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Re: Itemized deduction for CA Taxes

Post by 123 » Mon Apr 15, 2019 6:30 pm

If your federal itemized deductions are limited by the SALT limitation and you file a California return as well you can itemize without the SALT limitation on the state return. Turbo Tax California State version does it easily.
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Frisco Kid
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Re: Itemized deduction for CA Taxes

Post by Frisco Kid » Mon Apr 15, 2019 6:45 pm

If you do hard copy taxes you will use Form 540 Part II Adjustments page. California is non conforming on SALT so amounts over $10k Federal limit can be a California itemized deduction. Part II is a bit involved, easy to err unless you follow closely line by line instructions.

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grabiner
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Re: Itemized deduction for CA Taxes

Post by grabiner » Mon Apr 15, 2019 7:23 pm

123 wrote:
Mon Apr 15, 2019 6:30 pm
If your federal itemized deductions are limited by the SALT limitation and you file a California return as well you can itemize without the SALT limitation on the state return. Turbo Tax California State version does it easily.
However, state income taxes or sales taxes are not deductible at all in CA. You can still deduct some other taxes such as property taxes.

The way your tax software (and California Schedule CA, where you make the adjustments) handles this is to add back the lost deductions due to the SALT limit, and then subtract those deductions which are disallowed. For example, if you paid $8000 in state income tax and $3000 in property tax, your federal SALT deduction was $10,000. You add back the $1000 of disallowed deductions, and then subtract the $8000 in state tax, to get $3000 deductible property tax.
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inbox788
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Re: Itemized deduction for CA Taxes

Post by inbox788 » Mon Apr 15, 2019 7:37 pm

Frisco Kid wrote:
Mon Apr 15, 2019 6:45 pm
If you do hard copy taxes you will use Form 540 Part II Adjustments page. California is non conforming on SALT so amounts over $10k Federal limit can be a California itemized deduction. Part II is a bit involved, easy to err unless you follow closely line by line instructions.
Turns out I did itemize state taxes now that I took a closer look and understand what to look for. At the top of Part II Adjustments to Federal Itemized Deductions, there is a "Check the box if you did NOT itemize for federal but will itemize for California". Mine is checked. I'll have to see if anything I left out thinking it won't help SALT limited deductions might be helpful here. Looks like charitable deduction do help, so I need to continue to collect receipts.

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runner26
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Re: Itemized deduction for CA Taxes

Post by runner26 » Mon Apr 15, 2019 10:26 pm

See also discussion here viewtopic.php?f=2&t=236749
Instructions say you must include Federal schedule A in addition to check box and state schedule CA. Note that hr block did not print this with state return, you had to read and know state instructions.

RCL
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Re: Itemized deduction for CA Taxes

Post by RCL » Tue Apr 16, 2019 12:17 am

Is it true if you did not itemize the prior year and received a state tax refund, that refund does not have to be included as income on the next years state return?

If the above is true, how does one handle the 1099-G that you receive....is there a way of notifying the IRS via the return that you are not required to add the return amount to your income and you didn't just forget to add that extra amount to your earnings. Does the state somehow indicate on the 1099-G that the refund amount is not taxable?

What if you took the Federal standard deduction, but itemized the state return?

I read this information that was posted by another forum member https://www.irs.gov/pub/irs-drop/rr-19-11.pdf,
but not really sure what I read :oops:
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kaneohe
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Re: Itemized deduction for CA Taxes

Post by kaneohe » Tue Apr 16, 2019 8:34 am

RCL wrote:
Tue Apr 16, 2019 12:17 am
1) Is it true if you did not itemize the prior year(on Fed return) and received a state tax refund, that refund does not have to be included as income on the next years state return?

2)If the above is true, how does one handle the 1099-G that you receive....is there a way of notifying the IRS via the return that you are not required to add the return amount to your income and you didn't just forget to add that extra amount to your earnings. Does the state somehow indicate on the 1099-G that the refund amount is not taxable?

3)What if you took the Federal standard deduction, but itemized the state return?

I read this information that was posted by another forum member https://www.irs.gov/pub/irs-drop/rr-19-11.pdf,
but not really sure what I read :oops:
1)yes; also true if you did itemize but used the state sales tax instead of state income tax
2)not aware of how to notify tho if paper filing, I suppose you could add a note on return; IRS can figure out from your prior return or you can tell them that; 1099-G is not marked
3)see 1) ; you did not itemize prior yr (on Fed return)

Note that even if you did itemize previous yr, not all of state refund is necessarily taxable. There is a wksht for doing that calculation.

RCL
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Re: Itemized deduction for CA Taxes

Post by RCL » Tue Apr 16, 2019 11:46 am

kaneohe wrote:
Tue Apr 16, 2019 8:34 am
RCL wrote:
Tue Apr 16, 2019 12:17 am
1) Is it true if you did not itemize the prior year(on Fed return) and received a state tax refund, that refund does not have to be included as income on the next years state return?

2)If the above is true, how does one handle the 1099-G that you receive....is there a way of notifying the IRS via the return that you are not required to add the return amount to your income and you didn't just forget to add that extra amount to your earnings. Does the state somehow indicate on the 1099-G that the refund amount is not taxable?

3)What if you took the Federal standard deduction, but itemized the state return?

I read this information that was posted by another forum member https://www.irs.gov/pub/irs-drop/rr-19-11.pdf,
but not really sure what I read :oops:
1)yes; also true if you did itemize but used the state sales tax instead of state income tax
2)not aware of how to notify tho if paper filing, I suppose you could add a note on return; IRS can figure out from your prior return or you can tell them that; 1099-G is not marked
3)see 1) ; you did not itemize prior yr (on Fed return)

Note that even if you did itemize previous yr, not all of state refund is necessarily taxable. There is a wksht for doing that calculation.
Thank you for the explanations.
I think I saw that worksheet you mentioned, but it was for 2017, so didn't examine it very well
It Is Best To Consult Others Before Taking Unusual Actions

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