Assembly Bill 85 which includes provisions to suspend the use of California net operating loss deductions and certain tax credits for the tax years 2020 through 2022 was approved by both houses of the California legislature, pending the governor’s signature.  The bill was adopted in response to budgetary crises resulting from the COVID-19 Virus Pandemic.  Here are some key provisions contained in the bill:

NOL Deduction Suspension

For tax year beginning on or after January 1, 2020 and before January 1, 2023, net operating loss (NOL) use is suspended for both corporate and individual taxpayers with a net business income or modified adjusted income of $1 million or more, respectively.  The suspended NOLs’ carryover period will be extended by the number of years being suspended.

Tax Credit Limitation

Business tax credit usage is limited to $5 million for both corporate and individual taxpayers for tax year beginning on or after January 1, 2020 and before January 1, 2023.  The limitation does not apply to low-income housing credits and certain individual income tax credits.  The carryover periods are extended by the number of years that a credit is disallowed by the reason of this limitation.