By Saleem A. Shareef, Esq., Checkpoint News
California Gavin Newsom has signed legislation that updates the IRC conformity provisions. In addition to technical corrections, including deleting outdated references to repealed provisions of federal income tax laws and updating references to the IRC, the legislation makes permanent and clarifies certain state income tax provisions. (L. 2026, S1435 (c. 236), effective 09/14/2026 and retroactively applicable to taxable years beginning on or after 01/01/2025.)
Alimony payments
The legislation makes permanent the California personal income tax provision that California adopts IRC § 215 as it read on January 1, 2015, except this conformity does not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments apply to such modification.
Also, the legislation makes permanent the provision that nonresident and part-year residents are allowed a partial alimony deduction in the same ratio that their California adjusted gross income (AGI) (computed without regard to the alimony deduction) bears to total AGI for the same period (computed without regard to the alimony deduction). However, this provision does not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments apply to such modification.
Deferred compensation plans
The legislation makes applicable for taxable years beginning before January 1, 2025, the California personal income tax provision that limits maximum deferred compensation for the taxable year that may be excluded from gross income under IRC § 457, as applicable for state purposes, to the amount of deferred compensation that may be excluded from gross income under IRC § 457, as in effect on January 1, 2010, including additional elective deferrals under IRC § 414(v), as in effect on January 1, 2010.
Limitations on business losses
The amendments to IRC § 461(l) made by Section 2304(a) and (b) of P.L. 116-136 (the federal CARES Act), relating to the modification of limitation on losses for taxpayers other than corporations, do not apply to California personal income tax, except as otherwise provided. The legislation provides that Section 2304(b)(2)(B) of P.L. 116-136 applies for California personal income tax purposes (i.e., the Public Law amends IRC § 461(l)(3)(A) by adding that excess business loss is determined without regard to any deductions, gross income, or gains attributable to any trade or business of performing services as an employee).
Income of estate or trust in case of divorce
The legislation makes permanent the California personal income tax provision that, for purposes of computing the taxable income of the estate or trust and the taxable income of a spouse to whom IRC § 682(a), relating to income of an estate or trust in the case of divorce, as it read on January 1, 2015, applies, that spouse is considered as the beneficiary. However, this provision does not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments apply to such modification.
Limitation on business interest
IRC § 163(j), relating to the limitation on business interest, does not apply for California personal income tax purposes.
Amortization of goodwill
IRC § 197, relating to amortization of goodwill and certain other intangible assets, applies for California corporation and personal income tax purposes.
Electing large partnerships
The California income tax provision that provides that Part IV of Subchapter K of Chapter 1 of Subtitle A of the IRC (commencing with Section 771), does not apply, except as otherwise provided, is repealed.
Withholding tax on foreign partners
The legislation provides that IRC § 1446(f), relating to special rules for withholding on dispositions of partnership interests, does not apply to California income tax.
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