Details of Public Law 119-21, section 70601 , One Big Beautiful Bill Act

The provision would make permanent the business loss limitation, restricting a non-corporate taxpayer’s losses to $250,000 ($500,000 in the case of a joint return) beginning after taxable year December 31, 2026. Excess business losses are disallowed for the taxable year and are carried forward and treated as part of the taxpayer's net operating loss (NOL) carryforward in the following taxable years. An excess business loss for the taxable year is the excess of total deductions of the taxpayer attributable to the taxpayer's trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount.

The provision would also modify the adjustment for inflation for any taxable year beginning after December 31, 2025, and the cost-of-living adjustment to calendar year 2024.

Under the PITL and CTL, California conforms to IRC section 461 as of January 1, 2025. Under the PITL, California has modified conformity to IRC section 461(l), relating to limitation on excess business losses on noncorporate taxpayers, for taxable years beginning after December 31, 2018. For California purposes, losses are treated as an excess business loss carryover to the following taxable year as opposed to a net operating loss carryover under IRC section 172. As a result, California does not conform to the changes made by this provision.