Disclaimer: The content is drawn from a variety of sources, including (but not limited to) articles, Internal Revenue Code and Regulations, Court cases, articles, and other unofficial resources.

For a long time there have been differences between Federal and California tax law. As the Federal continues to monkey with tax code, the differences become greater and the work to file a California tax return becomes greater. Although tax software programs usually do most of the work, you still need to know what’s going on just to help clients understand their return.

California passed new legislation (AB 91) that has added some conformity features (which may or may not result in a benefit – you’ll be the judge). The bill is titled the “Loophole Closure and Small Business and Working Families Tax Relief Act of 2019” (LCSMWFTRA if you like acronyms).

  • Taxpayers can now use the rules for accounting method. In short, cash basis accounting for inventory purposes is allowed for businesses with gross income up to $25 million
  • Technical termination of partnerships (where a partner dies the partnership is forced to shut down) is now repealed for California partnerships
  • NOL carryover rules now match federal, i.e., carrybacks are no longer allowed
    • California does not conform to the federal 80% rule
  • Like-Kind exchanges completed after 1/10/2019 must include only real property 
    • California does not restrict exchanges only with real estate for MFJ with AGI of $500,000 or more (Single with AGI of $250,000 or more)
  • Excess business losses for noncorporate taxpayers
    • CA has no sunset date; Federal applies only through 2025
    • CA excess carries forward as an excess business loss; federal as NOL
    • CA calculation comes after applying CA passive activity rules; Federal calculation comes after applying Federal passive activity rules
  • Qualified higher education expenses for computers, etc., only applies to post-secondary education (Federal includes K-12 education)
  • COD discharge due to death or disability for CA has no sunset provision; Federal sunset after 2025
  • EITC: The credit is computed with respect to Federal EIC and amounts have increased
  • Young Child Tax Credit of up to $1,000 refundable for taxpayers with $25,000 or less in qualified earned income