Summary: California updated its Internal Revenue Code conformity date for the first time in 10 years, bringing the state in line with many federal income tax provisions. However, many differences still remain, including those federal tax provisions enacted by the One Big Beautiful Bill.
On October 1, 2025, California Governor Gavin Newsom signed Senate Bill 711 (SB 711), which updates California’s tax code by advancing the state’s conformity date with the Internal Revenue Code (IRC) by a decade. Prior to this legislation, California followed the IRC as of January 1, 2015, which created many differences between the federal and California income tax rules over that 10-year period. Applicable for tax years beginning on or after January 1, 2025, the new law adopts the provisions of the IRC as enacted on January 1, 2025.
By adopting this legislation, California will now incorporate many federal tax law provisions that were enacted over the last 10 years. However, the state will still decouple from certain federal changes, including select provisions enacted by the Tax Cuts and Jobs Acts (TCJA) in 2017. It’s important to note that California will not conform to the One Big Beautiful Bill (OBBB), as its new conformity date precedes that legislation.[1]
Key Federal Tax Provisions Now Adopted by California
Significant items that California will now follow include:
- Limitation of 1031 exchanges to real property
- Treatment of gain for interests in partnerships connected to performance of services
- Treatment of certain self-created property as capital assets under TCJA
- Modified percentages of the California alternative incremental research expense credit
- Limitation on gain exclusion for sale of stock to employee stock ownership plans to which IRC 1042(h) applies to the sale of stock in an S corporation
- Deductibility of loan expenses under the Paycheck Protection Program
- Treatment of alimony
Significant Federal Provisions California Will Not Adopt
Provisions that California continues to not adopt include:
- Amortization of foreign research and experimentation expenses
- Benefits for qualified business income
- Bonus depreciation for qualified property and 15-year life for qualified improvement property
- Increased expensing under IRC 179 for allowed business property
- Capital gain treatment of qualified opportunity zone investments
- Alternative minimum tax provisions enacted after January 1, 2015
- Business interest expense limitations under IRC 163(j) for corporations
- Section 382 provisions under TCJA
- Limitation of deductions of excess business loss for noncorporate taxpayers
Final Thoughts: What California Taxpayers Need to Know
Due to the multitude of changes brought on by SB 711, it is important for California taxpayers to evaluate the impacts of this legislation for fourth quarter payments as well as extension payments due for 2025. Aprio’s State and Local Tax team is monitoring any additional guidance from the Franchise Tax Board in relationship to this legislation.
[1] For more information on how states are addressing the provisions enacted under OBBBA, particularly as it relates to R&D expenses, please see our article: Some States are Splitting from the OBBB – Is Yours?
