Article
California’s 2025 IRC conformity update: What California taxpayers need to know
Dec. 16, 2025 · Authored by David M. Sacarelos
California’s tax landscape is entering a new era of alignment with federal law — yet with its signature selective approach.
Overview
On Oct. 1, 2025, Governor Gavin Newsom signed Senate Bill 711, (the Legislation), which updates California’s conformity to the Internal Revenue Code (IRC) from Jan. 1, 2015, to Jan. 1, 2025, for both personal and corporate income tax provisions, effective for tax years beginning on or after Jan. 1, 2025. This long-awaited move incorporates a decade’s worth of federal changes into state law, but true to tradition, California preserves partial conformity and nonconformity in numerous areas. For California taxpayers, this means both opportunities and ongoing complexity.
Key Provisions of the Legislation
California’s new conformity date pre-dates the enactment of the One Big Beautiful Bill Act (OBBBA), which was signed on July 4. As a result, California does not automatically conform to the changes enacted by OBBBA, and the Legislation specifically continues to decouple from several changes enacted by the prior federal tax reform, the Tax Cuts and Jobs Act (TCJA). Specifically, examples of decoupling include but are not limited to, the following:
- Corporate alternative minimum tax: The Legislation applies IRC Sec. 56A as of Jan. 1, 2015, except as specifically provided.
- Net operating loss (NOL) deductions: The Legislation decouples from the 80% federal NOL limitation found at IRC Sec. 172. That said, California has historically paused the ability to utilize NOLs for specific periods. Most recently, for taxable years 2024 through 2026, California suspended the NOL deduction for specific taxpayers.
- Business interest expense limitation: California decouples from IRC Sec. 163(j) for corporate income tax purposes. However, the Legislation, as currently enacted, imposes the TJCA version of IRC Sec. 163(j) for personal income tax purposes.
- Research and experimental (R&E) expenses: The Legislation retains the IRC section 174 language as of Jan. 1, 2015. As such, for California purposes, both U.S. and non-U.S. R&E costs continue to be immediately deductible as California does not conform to the TCJA amendments to IRC Sec. 174 or OBBBA’s IRC Sec. 174A changes.
