bonus depn on LLC return

[Babayface1]

 We filed 2021 LLC tax return for AZ State LLC . The business is a hotel that is in the state of AZ. Ca FTB wants us to file a CA LLC tax return since the member manager lives in CA state. We prepared the CA LLC return showing income allocation of 0% sourced to CA and 100% sourced to AZ state. We paid the $800 FTB tax upon filing.

This LLC had large amount of new assets additions on which we took Bonus depn. AZ state allowed the bonus depn, but the CA state does not allow bonus depn. On the CA state k-1,  CA income is higher than Federal income by the amount of the bonus depn. This bonus depn difference shows on Ca k-1 Line 1 ( c ) and col ( d) that says "amounts using Ca law" shows higher income. Col ( e ) shows $0 as "CA source income".   

Question:

Will the member manger who is a resident of CA report income as shown on Line 1 Col (d ) i.e., higher income due to Bonus not allowed by CA even if the hotel had 100% income sourced from AZ state ?  This does not seem fair.  Is this correct ?

[BobKamman]

If he is a California resident, why should the source of the income matter?  

[sjrcpa]

A CA resident has to compute his CA tax in accordance with CA law. 

If federal taxable income, from whatever source, was reduced by bonus depreciation and CA doesn't allow bonus depreciation then an adjustment needs to be made on the CA return.

[Babayface1]

The member is a Ca resident, so he will be taxed on K-1 income from the AZ LLC. So his Federal income is say $1000 and we had taken bonus depn of $200 to arrive to the $1000 federal income.

When I file the 1040 return for the Ca resident member, I will pick up $1000 as federal income but do I pickup $1200 as CA state income from this k-1  ? OR do I pick up $1000 as CA state  income from this K-1 ?

[sjrcpa · Accepted solution]

$1,200

[Babayface1]

Thanks so much. 

[Babayface1]

Thanks so much