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New: California Allows Net Operating Loss Carrybacks

2/19/14

Synopsis

Effective for tax years beginning on or after January 1, 2013, California allows taxpayers to carryback current year net operating losses.

Issue

Historically, California did not allow net operating losses (NOLs) to be carried back. Effective for tax years beginning on or after January 1, 2013, California allows taxpayers to carry current year NOLs back to the two immediately preceding tax years (subject to certain limitations). Alternatively, taxpayers can elect to forgo the carryback and carry such losses forward. NOL carrybacks are not allowed for any NOL attributable to taxable years beginning before January 1, 2013.
 
The allowable carryback percentage varies depending on the taxable year in which the NOL is incurred. For an NOL incurred in a taxable year beginning on or after:

  • January 1, 2013 and before January 1, 2014, the carryback amount may not exceed 50 percent of the NOL.
  • January 1, 2014 and before January 1, 2015, the carryback amount may not exceed 75 percent of the NOL.
  • January 1, 2015 and after the carryback amount is 100% of the NOL.
     

 

The actual NOL carryback computation will depend upon each specific taxpayer. Since California law generally incorporates federal law, the federal regulations will apply to the extent they do not conflict with California's NOL provisions.

What Does CohnReznick Think?

While NOL carryback claims are often a quick way to monetize NOLs, taxpayers should review their tax position to ensure that carrying back an NOL for California purposes is appropriate based on their specific situation.

Contact

For more information, please contact Patrick Duffany, Partner and State and Local Tax Practice Leader, at 860-368-3607.

To learn more about CohnReznick's State and Local Tax Practice, please visit our webpage.

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This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.