I am very frustrated with the FTB and Lacerte regarding the CA NOL carryforward suspension.  I have a client with a > $1,000,000 capital gain on the sale of his home (nonbusiness gain) and $0 net business income.  It appears that Part III, Line 1 of the 3805V and the instructions for the 3805V are at odds with one another.  See below:

 

Part III, Line 1 of 3805V

MTI from Part II, line 6. If your net business income or modified adjusted gross income is $1,000,000 or more for the taxable year, see instructions.

 

Excerpt from Instructions for 3805V, page 1 under “What’s New”

However, taxpayers with net business income or modified adjusted gross income of less than $1,000,000 or with disaster loss carryovers are not affected by the NOL suspension rules.

 

The instructions clearly state that the suspension does NOT apply if you have EITHER business income < $MM OR AGI < $1MM (which is the case with my taxpayer). However, in speaking to the FTB and Lacerte, they seem to be reading the instructions incorrectly and saying that you ARE subject to the suspension if your income from either category is >$1MM.  Spidell agrees with my reading of the CA rules, as you gave a similar example in your 2020/2021 Federal and CA Tax Update class (see page 169 and 170 of the class handout).

Have you had any other questions about this?  Have you discussed it with the FTB?

Sue Heffner