TL/DR –
California has updated its state’s conformity to the Internal Revenue Code (IRC) for corporate and individual income tax purposes as of January 1, 2025, by signing SB 711 into law on October 1, 2025. However, the state continues to decouple from significant portions of changes made to federal tax law by the Tax Cuts and Jobs Act and does not conform to changes made by the “One Big Beautiful Bill Act”. The conformity changes in SB 711 will impact both business and individual taxpayers, with the state legislature noting that there have been “more than 1,000 substantive changes” to the IRC since the state last updated its conformity date.
“`html
California Incorporates Internal Revenue Code Changes, Rejects Certain Federal Rules
On October 1, 2025, California Governor signed SB 711 into law, marking a significant update to the state’s conformity to the Internal Revenue Code (IRC). This brings California’s incorporation of specific provisions of the IRC forward from January 1, 2015, to January 1, 2025. The decision marks the first major update in California’s tax conformity in a decade.
Selective Conformity to Federal Tax Revisions
While the newly signed legislation brings the state’s tax code up to date with a decade of federal tax changes, it does not adopt all provisions. Notably, California continues to reject several major changes made by the federal Tax Cuts and Jobs Act (TCJA). The state also chose not to conform to the changes enacted by the more recent “One Big Beautiful Bill Act” (P.L. 119-21, OBBBA).
Key Inclusions and Exclusions
California’s update includes conformity to certain federal changes relating to the alternative simplified credit (ASC) method for calculating the research credit, limitations on IRC Section 1031 like-kind exchanges, and the treatment of loan expenses under the additional Paycheck Protection Program, among others. However, several major federal provisions are notably absent from SB 711, including the business interest expense limitation under IRC Section 163(j) and the qualified business income deduction under IRC Section 199A.
The approved bill also does not include conformity to the renewable energy development provisions added by the Inflation Reduction Act. These provisions were addressed separately by the state in SB 302, a recently enacted legislation.
Implications for Taxpayers
The changes brought about by SB 711 will affect both business and individual taxpayers. Taxpayers will need to adjust their estimated payments for 2025 accordingly, although California does offer penalty relief if the penalty is due to a change in law that occurred during the year in question.
Despite its selectivity in adhering to federal tax law changes, the California legislature noted that it had incorporated “more than 1,000 substantive changes” to the IRC since the state last updated its conformity date.
For more detailed information about the changes, consult the Appendix: Conformity Chart provided by the Senate Revenue & Taxation Committee, which outlines the “more than 1,000 substantive changes” to the IRC enacted since the state last updated its date of conformity to the IRC.
“`
—
Read More US Economic News