California law says that any loss which is disallowed under this provision is to “be treated as a carryover excess business loss for the following taxable year” instead of as a net operating loss carryover as it is for federal. This means the carryover amount is used in determining if there’s an excess loss in the carryover year for California.

The federal provision applies only for years 2018 through 2028, except the CARES Act turned off the limitation for years 2018-2020, while the California law is effective for taxable years beginning after December 31, 2018 and continues indefinitely.

California’s, rather than the federal’s, passive activity loss provisions are used in determining any excess loss.

Form FTB 3461, California Limitation on Business Losses, is required for a non-corporate taxpayer with net losses from all of their trades or businesses of more than $305,000 ($610,000 for married/registered domestic partners (RDPs) taxpayers filing a joint return). If the loss is greater than these threshold amounts, the excess is not deductible in the current year but is carried forward to the next year.