what’s New

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 (AGI) of less than $1,000,000 or with disaster loss carryovers are not affected by the NOL suspension rules. For more information, see California Revenue and Taxation Code (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 (AMT) 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, get form FTB 3870, and see the instructions for Part III, Credits That Reduce Tax .

Intangible Drilling and Development Costs – California law does not allow the Internal Revenue Code (IRC) Section 263(c) deduction for intangible drilling and development costs (IDCs) in the case of oil and gas wells paid or incurred on or after January 1, 2024. Since R&TC Section 17260(c) is specific to oil and gas wells, geothermal well IDCs are still afforded preferential treatment under R&TC Section 17201(c). Therefore, the tax preference item still applies for geothermal wells for California personal income tax purposes.

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.

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.