3526: Investment Interest Expense Deduction (2025)

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 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 no more than your investment income.
• You have no disallowed investment interest expense from 2024.

What you'll need

Have the following information and applicable forms available:

• Your name as shown on your tax return and your SSN, ITIN, or FEIN.
• Your investment interest paid or accrued in 2025, investment income, gains and losses from investment property, and deductible investment expenses.
• Your 2024 Form FTB 3526, line 7, for any disallowed investment 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 applicable, for investment expense calculations and the California deduction adjustment.

If part of the deduction relates to an activity for which you are not at risk, the text directs you to 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 provide a mailing address or e-filing directions.

Form 541 filers stop at line 8 and enter that amount on Form 541, line 10. Other filers continue through lines 9 and 10 to calculate the California adjustment.

For the line 10 adjustment:

• If line 8 is greater than line 9, enter the difference on Schedule CA (540), Part II, line 9, column C, or Schedule CA (540NR), Part III, line 9, column C.
• If line 9 is greater than line 8, enter the difference in column B of the same Schedule CA line.

Write “FTB 3526” on that Schedule CA line. The text provides separate reporting directions for interest expense attributable to royalties.

Common mistakes

• Including excluded interest. Investment interest expense does not include qualified residence interest, interest properly allocated to a passive activity, capitalized interest, or interest related to tax-exempt interest income.
• Entering too much on line 4e. The amount elected cannot exceed line 4b and must come from the net capital gain on line 4c.
• Overlooking the consequences 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.
• Leaving out expense adjustments. Include adjustments made to miscellaneous expenses on Schedule CA when calculating investment expenses.
• Missing the Schedule CA label. Write “FTB 3526” on the applicable line 9 when reporting the deduction adjustment.

Questions people ask

What does Form FTB 3526 calculate?

It calculates the investment interest expense deductible for the current year and any amount carried forward to future years.

How much investment interest can I deduct?

Line 8 uses the smaller of total investment interest expense on line 3 or net investment income on line 6. At-risk limitations may also affect the deductible amount.

What happens to disallowed interest for 2025?

Line 7 calculates the disallowed investment interest expense carried forward to 2026. Subtract line 6 from line 3 and enter zero if the result is zero or less.

Can I include net capital gain in investment income?

Net capital gain is generally excluded, but you may elect to include all or part of it on line 4e, up to the amount on line 4b. Make the election no later than the due date, including extensions, of your California income tax return.

Official sources

• https://www.ftb.ca.gov/forms/2025/2025-3526.pdf