California has once again suspended NOL deductions, this time for years 2020 through 2022 for businesses with income, or modified AGI, of $1 million or more. The carryover period for a an NOL deduction disallowed by this provision will be extended. (AB 85)

The taxpayer’s net operating loss (NOL) deduction is not limited by the amount of NOL from all sources if taxpayers are non-residents or part-year residents of California. The California NOL was suspended for the 2002 and 2003 taxable years; for taxable years 2008 and 2009, except for “small businesses” with net business income of less than $500,000; and for taxable years 2010 and 2011, except for taxpayers with modified AGI less than $300,000 or with disaster loss carryovers. 

Always a Non-resident - The taxpayer is allowed a net operating loss deduction carryover for California taxable income based upon California sourced income and deductions, regardless of whether they have an NOL in computing taxable income.

Change of Residency to California - If the taxpayer had NOL carryovers and was a non-resident of California in prior years, the NOL carryovers need to be restated as if they had been a California resident for all prior years.

Change of Residency from California - If the taxpayer had NOL carryovers and became a non-resident of California in prior years, their NOL carryovers need to be restated as if they had been a non-resident for all prior years.

Part-Year Resident - If the taxpayer changes residency during the tax year, the NOL deduction is computed using resident rules for the period of the year they were a resident, and non-resident rules for the period of the year they were not a resident. Compute any NOL carryovers as if they were a California resident for all prior years and as if they were a non-resident for all prior years. Prorate both NOL carryover amounts based upon the period of California residency and the period of non residency during the year.