Interest and Dividends – Intangible Income
Intangible income such as interest and dividends have a source where the taxpayer is a resident.
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CA Resident – Generally, intangible income from worldwide sources is taxable to CA.
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CA Non-resident – Intangible income received from California by a non-resident is not taxed by California.
Exception - interest and dividends have a source in CA if the account or security is used in a trade or business or pledged as security for a loan, the proceeds of which are used in a trade or business in CA.
“ Example – CA Non-resident - Taxpayer, a California non-resident, owns stock in a California corporation and received $10,000 in dividends. Dividends have a source in the owner's state of residence. Therefore, the dividends the taxpayer received are not California source income and not taxable by California. ”
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“ Example – CA Part-Year Resident – The taxpayer moved from New York and became a California resident on June 1. However, he kept his money in a bank account in New York. From January 1 to December 31, the New York bank account earned $500. Interest income, which is intangible, has a source in the recipient's state of residence. Because the taxpayer became a California resident on June 1, the interest earned by the taxpayer from June 1 to December 31, is considered California source income. If the $500 of interest had been earned ratably through the year, then $292 ($500 x 7/12) of the interest would be taxable to California. ”
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“ Example – CA Part-Year Resident - During the tax year, the taxpayer was a part-year resident. He sold 500 shares of stock at a $20,000 gain after becoming a California resident. Since he was a California resident at the time of sale, the gain on the sale of the stock is taxable by California even though the stock appreciation had taken place over a number of years in a different state. ”
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