INSIGHT
California NOL Suspension and Business Credits Limitation
Elaine Leung, Andre Shevchuck, Bob Houston • July 1, 2020
Services: Flow-Through
On June 29, 2020, California Gov. Gavin Newsom signed Assembly Bill 85 into law, which temporarily suspends net operating loss (NOL) deductions for most businesses and limits certain general business credits. These provisions will be applied retroactively to tax years beginning on or after January 1, 2020 through December 31, 2022
NOL Suspension
The NOL suspension provisions apply to taxpayers with business income or modified adjusted gross income over $1 million. The new provisions affect individuals, flow-through entities and corporations for three years (2020, 2021 and 2022).
The bill also extends the carryover period for losses disallowed during the temporary suspension:
- One year for losses incurred in tax years beginning on or after January 1, 2021, but before January 1, 2022
- Two years for losses incurred in tax years beginning on or after January 1, 2020, but before January 1, 2021
- Three years for losses incurred in tax years beginning before Jan. 1, 2020
Tax Credit Limitations
Utilization of general business credits will be limited to $5 million each year for tax years beginning on or after January 1, 2020 through December 31, 2022. The $5 million limitation will apply to a combined group, if the taxpayer files tax return on a combined basis.
Key Takeaway
If you expect to use NOL deductions and general business credits to reduce your California tax liabilities for 2020, we advise you assess your tax planning strategy to see if these provisions will change your tax situation. As a reminder, California repealed the opportunity to carryback NOL deductions beginning in 2019. Therefore, any restrictions on utilization of NOL deductions and general business credits will impact your organization’s cash situation.
Contact us or reach out to your BPM tax advisor to learn more.
Bob Houston
Of Counsel, Tax
M&A Leader
Bob’s practice includes Merger & Acquisition transaction services and tax structuring for multinational multi-entity organizations, including extensive experience with public …
Elaine Leung
Director, Tax
Elaine is a Tax Director in BPM’s San Francisco office and a member of the Firm’s Flow-Through group, which specializes …
Andre Shevchuck
Partner, Tax
Specialty Tax Services Leader
Managing Partner, Bay Area Region
Andre is the leader of BPM’s Specialized Tax Services practices. As leader of BPM’s Research and Development (“R&D”) Tax Credit …
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