Sale of Publicly Traded Partnership

[Diana Skocypec]

If the partnership never had any California income, should client be taxed on the depreciation recapture in California? Reporting the capital gain/loss from the sale of the partnership interest makes sense to report on the California return, but reporting recaptured depreciation as ordinary income for a state that never had any income from the partnership doesn't seem right. I am hoping the answer is to adjust the partnership basis for California purposes.

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Diana L. Skocypec

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[Lee Reams]

If owned by a CA resident it would seem to me it would be subject to CA income tax.

Lee

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[Diana Skocypec]

For the capital gain/loss on sale yes definitely reportable for federal abd state. For the ordinary income resulting from recaptured depreciation/depletion Federal has offsetting previous disallowed passive losses. However there was never any passive loss carryover for California. My program is adding the federal passive loss as ordinary income to CA because there was no CA passive loss.

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[Lee Reams]

So why isn’t there any passive carryover for CA since CA conforms to Federal pasive rules?

Lee

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