California Capital Loss Carryover Worksheet: Lines, Examples, and Filing

If you ended the year with more capital losses than California lets you deduct at once, the California capital loss carryover worksheet is how you figure out how much rolls into next year. It sits inside the instructions for Schedule D (540), runs eight lines, and pulls numbers straight from your Schedule D and Form 540. Line 8 is your answer: the loss you carry forward.¹

California uses the same annual cap as federal law: $3,000 in net capital losses against ordinary income each year, or $1,500 if you’re married or a registered domestic partner filing separately.² Anything above that carries forward indefinitely, and short-term stays short-term, long-term stays long-term. California taxes both at ordinary rates, but the character still has to be tracked so Schedule D calculates properly.

What to Gather Before You Start

You need four things in front of you:

Your prior year’s California Schedule D (540 or 540NR), which shows the carryover coming into this year.
Your current-year Schedule D (540), specifically the figures on lines 8 and 11.
Your current-year Form 540, lines 17 and 18 (California AGI and your standard or itemized deduction).³
Records for any assets where your California basis differs from your federal basis: depreciation schedules, S corporation stock records, documentation of state credits that reduced basis.

If you were a nonresident or part-year resident during any year that fed into your current carryover, pull those records too. You may need to recompute the loss.

Working the Eight Lines

The worksheet lives in the Schedule D (540) instructions. It determines two things: how much of the loss actually got used this year, and how much survives into next year.¹

Line 1. Enter the loss from Schedule D (540), line 11, as a positive number. Line 11 is your net capital loss after the $3,000 (or $1,500) cap, meaning the amount that actually reduced your taxable income this year.

Line 2. Enter your California AGI from Form 540, line 17.

Line 3. Enter Form 540, line 18. That’s whichever you claimed, standard or itemized.

Line 4. Subtract line 3 from line 2. Write the result as a negative if it comes out below zero. This roughly measures your taxable income before the capital loss deduction.

Line 5. Add line 1 and line 4. If the total is less than zero, enter zero. This caps the usable loss at the amount that actually offset positive income. If your income was so low that part of the $3,000 deduction had nothing to work against, this line is what shifts the unused portion into your carryover.

Line 6. Enter the loss from Schedule D (540), line 8, as a positive number. That’s your total net capital loss before the annual cap trimmed it.

Line 7. Enter the smaller of line 1 or line 5. This is the portion of the loss genuinely absorbed against income this year.

Line 8. Subtract line 7 from line 6. The result is your California capital loss carryover to next year.¹

A Worked Example

Suppose your total net capital loss on Schedule D line 8 is $10,000, and after the annual cap, line 11 is $3,000. Your California AGI is $55,000 and your standard deduction is $5,363.

Line 1: $3,000
Line 2: $55,000
Line 3: $5,363
Line 4: $49,637
Line 5: $52,637
Line 6: $10,000
Line 7: $3,000 (smaller of line 1 or line 5)
Line 8: $7,000

The $7,000 rolls into next year. Because the taxpayer’s income was well above zero, the full $3,000 deduction was absorbed. Line 5 does its real work in low-income years: when line 4 is negative enough that line 5 hits zero, line 7 also drops to zero, and the entire loss carries forward untouched.

When Your California Carryover Won’t Match the Federal One

You cannot just copy the federal carryover onto your California return. Several California-specific rules produce a different basis in the assets you sold, which produces a different gain or loss, which produces a different carryover.⁴

California has historically applied different limits to accelerated depreciation and Section 179 expensing. Business property depreciated one way federally and another way for California will show a different gain or loss on sale.
California does not recognize the federal Section 1202 exclusion for qualified small business stock. Gain excluded federally is fully taxable in California.
California does not conform to federal Qualified Opportunity Zone deferrals. Gain you deferred federally is still taxable in the year realized for California.
California did not recognize S corporations before 1987, so state basis in older S corporation stock can diverge sharply from federal basis.
Certain California credits tied to capital assets require a corresponding basis reduction with no federal counterpart.

Any of these means you must run the carryover calculation separately for California.

Part-Year Residents, Nonresidents, and Prior Nonresident Years

If you were a California resident every year that contributed to the carryover, the standard worksheet is all you need. Change your residency history and the calculation shifts.

Now a resident, but a nonresident in a prior year that generated part of the carryover? You have to recalculate that prior year’s loss as if you had been a California resident the whole time, using worldwide income rather than California-source income.⁴ The recomputed number is often larger than what appeared on the original nonresident return.

Nonresidents and part-year residents use Schedule D (540NR) instead, and the carryover is generally based on California-source income and losses only.⁵ The 540NR worksheet uses two columns: one treating you as a full-year California resident, one treating you as a full-year nonresident. Your year-end residency determines which drives the carryover.

One practical point for nonresidents: gains and losses on intangibles like stocks and bonds are generally not California-source income. A nonresident who sold stock at a loss usually can’t build a California carryover from it. The exception is when the intangible has acquired a business situs in California or the trading activity itself constitutes doing business here.

Where the Numbers Land on Your Return

The worksheet doesn’t get filed. Its outputs feed two places on your return.

The current-year deduction (the smaller of your net loss or $3,000) flows through Schedule D (540) onto Form 540. If your California capital gain or loss differs from the federal figure, you reconcile that on Schedule CA (540), line 7a.⁶ Schedule D (540) has specific reconciliation lines: if the federal amount on line 10 exceeds the California amount on line 11, the difference goes on line 12a and flows to Schedule CA line 7a, Column B. If the federal amount is smaller, the difference goes on line 12b and to Column C.⁷

Line 8 of the worksheet is your opening carryover balance for next year. Save it somewhere you’ll actually find it in twelve months.

Keep the Records That Support It

The Franchise Tax Board’s normal examination window is four years from the return’s due date or its actual filing date, whichever is later.⁸ That window is misleading for carryovers. A loss that takes a decade to absorb needs supporting records that survive a decade. FTB guidance is to keep property records as long as they are needed to figure basis.

At minimum: brokerage statements, purchase agreements, cost basis records, improvement documentation, and every year’s Schedule D (540) along with the completed carryover worksheet. If the FTB questions the carryover five or eight years in, you’ll be reconstructing the chain from the original transaction forward.

1
State of California Franchise Tax Board. 2025 Instructions for California Schedule D (540)
2
Office of the Law Revision Counsel. 26 U.S.C. 1211 – Limitation on Capital Losses
3
State of California Franchise Tax Board. 2025 Instructions for Form 540
4
Franchise Tax Board. 2024 Instructions for California Schedule D (540)
5
Franchise Tax Board. 2022 Instructions for California Schedule D (540NR) – Purpose
6
State of California Franchise Tax Board. 2025 Instructions for Schedule CA (540)
7
California Franchise Tax Board. Schedule D (540) – California Capital Gain or Loss Adjustment
8
Franchise Tax Board. Keeping Your Tax Records