2024 Tax Law Changes/What’s New

Wildfire Relief Payment – For taxable years beginning after December 31, 2019, and before January 1, 2026, the Federal Disaster Tax Relief Act of 2023 allows an exclusion from gross income for any amount received by an individual as a qualified wildfire relief payment. Generally, California law does not conform. If any qualified amount was excluded from income for federal purposes and California law provides no similar exclusion, include that amount in income for California purposes. For more information and for specific wildfire relief payments excluded for California purposes, see Schedule CA (540) instructions .

Reporting Requirements – Taxpayers may need to file form FTB 4197, Information on Tax Expenditure Items, with the tax return to report tax expenditure items as part of the FTB’s annual reporting requirements under R&TC Section 41. To determine if you have an R&TC Section 41 reporting requirement, see the R&TC Section 41 Reporting Requirements section or get form FTB 4197.

Net Operating Loss Suspension – For taxable years beginning on or after January 1, 2024, and before January 1, 2027, California has suspended the net operating loss (NOL) carryover deduction. Taxpayers may continue to compute and carryover an NOL during the suspension period. However , taxpayers with net business income or modified adjusted gross income of less than $1,000,000 or with disaster loss carryovers are not affected by the NOL suspension rules.

The carryover period for suspended losses is extended by:

Three years for losses incurred in taxable years beginning before January 1, 2024.

Two years for losses incurred in taxable years beginning on or after January 1, 2024, and before January 1, 2025.

One year for losses incurred in taxable years beginning on or after January 1, 2025, and before January 1, 2026.

For more information, see R&TC Section 17276.24, and get form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts.

Business Credit Limitation – For taxable years beginning on or after January 1, 2024, and before January 1, 2027, there is a $5,000,000 limitation on the application of business credits. The total of all business credits including the carryover of any credit for the taxable year may not reduce the “net tax” by more than $5,000,000. This limitation does not apply to the Low-Income Housing Credit or the Pass-Through Entity Elective Tax Credit. The credit for prior year Alternative Minimum Tax is not subject to the credit limitation. Business credits should be applied against “net tax” before other credits.

For each taxable year of the limitation, taxpayers may make an irrevocable election to receive an annual refundable credit amount, in future tax years, for business credits disallowed due to the $5,000,000 limitation. The election must be made annually by completing form FTB 3870, Election for Refundable Credit, and attaching it to an original, timely filed tax return.

If a taxpayer does not choose to make the election outlined above, business credits disallowed due to the limitation may be carried over. The carryover period for disallowed credits is extended by the number of taxable years the credit was not allowed.

For more information, refer to R&TC Sections 17039.4 and 17039.5 and get form FTB 3870.

Intangible Drilling and Development Costs – California law does not allow the IRC Section 263(c) deduction for intangible drilling and development costs in the case of oil and gas wells paid or incurred on or after January 1, 2024. For more information, see R&TC Section 17260 and get Schedule P (540), Alternative Minimum Tax and Credit Limitations – Residents, form FTB 3885A, Depreciation and Amortization Adjustments, and FTB Pub. 1001.

Percentage Depletion – For taxable years beginning on or after January 1, 2024, California law does not allow the calculation of depletion as a percentage of gross income from the property for specified natural resources, including coal, oil shale, oil and gas wells. R&TC Sections 17681.3 and 17681.6 allowing state nonconformity to federal rules for percentage depletion of certain refiner exclusions as well as the temporary suspension of taxable income limit for marginal production have also been repealed. For more information, see R&TC Section 17681 and get Schedule P (540), form FTB 3885A, and FTB Pub. 1001.

Enhanced Oil Recovery Credit Repeal – For taxable years beginning on or after January 1, 2024, the Enhanced Oil Recovery Credit has been repealed. Taxpayers may now only claim available carryovers. For more information, get form FTB 3540, Credit Carryover and Recapture Summary.

Postponement of Certain Tax-Related Deadlines – Beginning on or after June 27, 2024, the Director of Finance shall determine when IRC Section 7508A, related to postponement of certain federal tax-related deadlines, applies for California purposes to a taxpayer affected by a state of emergency declared by the Governor or a federally declared disaster. Impacted taxpayers can request an additional relief period if the state postponement period expires before the federal postponement period by filing form FTB 3872, California Disaster Relief Request for Postponement of Tax Deadlines. For more information, get form FTB 3872 and see R&TC Section 18572.

Special Rules for Certain Distributions from Qualified IRC Section 529 Tuition Plans – The federal Consolidated Appropriations Act (CAA), 2023, allows qualified IRC Section 529 tuition plans that have been maintained for 15 years to rollover to a Roth IRA without a tax or penalty. Under the federal law, rollover distributions from an IRC Section 529 plan to a Roth IRA after December 31, 2023, will be treated in the same manner as the earnings and contributions of a Roth IRA. California law does not conform to this federal provision. Rollover distribution from an IRC Section 529 plan to a Roth IRA is includible in California taxable income and subject to an additional tax of 2½%. For more information, see Schedule CA (540) instructions and get form FTB 3805P, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts.

Catch-Up Contributions for Certain Individuals – For taxable years beginning on or after January 1, 2024, the federal CAA, 2023, provides for the indexing for the $1,000 catch-up contribution to an IRA for individuals age 50 or older. The CAA, 2023, also increases certain contribution amounts, including catch-up contributions for individuals age 50 or over as defined in IRC Section 414(v). California law does not conform to these federal provisions. Any amount contributed that exceeds the contribution amount allowed for California may need to be included in income for California purposes. Any distribution from contributions in excess of the California limit may become taxable when distributed. For more information, see Schedule CA (540) instructions and get FTB Pub. 1005, Pension and Annuity Guidelines.

Wildfire Mitigation Payment – For taxable years beginning on or after January 1, 2024, and before January 1, 2029, California law allows a qualified taxpayer an exclusion from gross income for any amount received as a California qualified wildfire loss mitigation payment through the California Wildfire Mitigation Financial Assistance Program. For more information, see Schedule CA (540) instructions and R&TC Section 17138.8.

Voluntary Contribution – You may contribute to the following new funds:

Prevention of Animal Homelessness and Cruelty Voluntary Tax Contribution Fund

California ALS Research Network Voluntary Tax Contribution Fund

State Disability Insurance – For taxable years beginning on or after January 1, 2024, California removes the taxable wage limit and maximum withholdings for each employee subject to State Disability Insurance (SDI) contributions. All wages are taxable for the purpose of computing SDI worker contributions. As a result, the excess SDI (or VPDI) withheld line has been removed from the personal income tax return by updating the line as “reserved for future use.” For more information, go to the Employment Development Department (EDD) website at edd.ca.gov .