3526: Investment Interest Expense Deduction (2024)
California · FTB · Used for tax years 2024
California Form 3526 calculates the investment interest expense deduction for 2024 and any disallowed amount to carry forward to future years. It also calculates the California deduction adjustment for filers other than Form 541 filers.
Who files this form
Individuals, estates, and trusts claiming a deduction for investment interest expense must complete Form FTB 3526 and attach it to their California tax return.
You do not have to file this form if all four conditions apply:
- Your only investment income was from interest or dividends.
- You have no other deductible expenses connected with producing that interest or dividend income.
- Your investment interest expense is not more than your investment income.
- You have no disallowed investment interest expense from 2023.
What you'll need
Have the following information and forms available, as applicable:
- Your name and SSN, ITIN, or FEIN as shown on your tax return.
- Investment interest paid or accrued in 2024, investment income, gains and losses from investment property, and deductible investment expenses.
- Your 2023 Form FTB 3526, line 7, for any disallowed interest carried forward.
- Schedules K-1 (100S, 541, 565, or 568) reporting investment interest, income, or expenses.
- Federal Form 4952, line 8, unless you file Form 541.
- Schedule CA (540 or 540NR), if you need to figure investment expenses or report a California deduction adjustment.
If part of your deductible investment interest relates to an activity for which you are not at risk, complete federal Form 6198 using California amounts.
How to file
Attach Form FTB 3526 to Form 540, Form 540NR, or Form 541. The supplied text does not give a mailing address or e-filing instructions.
- Enter your 2024 investment interest on line 1 and any disallowed interest from 2023 on line 2.
- Use lines 4a through 6 to figure net investment income. Line 7 figures the disallowed interest carried forward to 2025.
- On line 8, enter the smaller of total investment interest on line 3 or net investment income on line 6, subject to the at-risk instructions.
- Form 541 filers: Stop at line 8 and enter that amount on Form 541, line 10.
- Other filers: Complete lines 9 and 10 to compare the California deduction with federal Form 4952, line 8.
If the California deduction is larger, report the difference on Schedule CA (540), Part II, line 9, column C, or Schedule CA (540NR), Part III, line 9, column C. If the federal deduction is larger, use column B instead. Write “FTB 3526” on that Schedule CA line.
If any line 8 interest is attributable to royalties, follow the separate line 10 instructions for reporting the California-federal difference on Schedule CA, Section B, line 5.
Common mistakes
- Including interest that does not qualify. Investment interest does not include qualified residence interest, interest allocated to passive activities, capitalized interest, or interest related to tax-exempt interest income.
- Entering too much on line 4e. The elected amount cannot exceed line 4b.
- Overlooking the effect of an election. Consider the California tax effect before making a separate California election or applying the federal election. Once made, the election cannot be revoked without Franchise Tax Board consent.
- Missing expense adjustments. Include any adjustments to miscellaneous expenses on Schedule CA when calculating line 5. The 2% adjusted gross income limitation may reduce the amount included.
- Forgetting the Schedule CA label. Write “FTB 3526” on the Schedule CA line used for the line 10 adjustment.
- Overlooking alternative minimum tax. Deductible investment interest may be an AMT adjustment. See Schedule P (540, 540NR, or 541).
Questions people ask
What does Form FTB 3526 calculate?
It figures the investment interest expense deductible for the current year and any amount carried forward to future years.
What counts as investment interest expense?
It is interest paid or accrued on a loan, or part of a loan, allocated to property held for investment. Include qualifying investment interest reported on Schedules K-1.
Can I carry forward interest I cannot deduct in 2024?
Line 7 calculates disallowed investment interest to carry forward to 2025. Subtract line 6 from line 3. If the result is zero or less, enter 0.
Can I include net capital gain in investment income?
Net capital gain from investment property is generally excluded, but you may elect to include all or part of it on line 4e. The amount cannot exceed line 4b. California allows a separate election, and the election cannot be revoked without Franchise Tax Board consent.