California’s conformity to federal tax law is partial and static: the state Revenue and Taxation Code references the Internal Revenue Code as of a fixed date, and the legislature then picks provision by provision what to adopt and what to reject. Senate Bill 711, signed in 2025, moved that reference date from January 1, 2015, to January 1, 2025, for tax years beginning on or after January 1, 2025.1California Franchise Tax Board. Bill Analysis SB 711 – Conformity Act of 2025 Your federal adjusted gross income is only a starting point. From there, you add back deductions California disallows and subtract income California doesn’t tax on Schedule CA, and the result is often a noticeably different taxable income figure.
How the Static Conformity Rule Works
SB 711 brought California current with a decade of federal changes, but not all of them. The bill specifically declined to conform to several major federal provisions, including bonus depreciation.1California Franchise Tax Board. Bill Analysis SB 711 – Conformity Act of 2025 Just as important is what static conformity leaves out: anything Congress passes after the reference date does not flow into California law until the legislature acts again.
The most consequential omission right now is the One Big Beautiful Bill Act, signed into federal law on August 15, 2025. Because SB 711’s conformity date is January 1, 2025, none of that act’s changes — a much larger standard deduction, a higher SALT cap, and other overhauls — apply on your California return.2State of California Franchise Tax Board. California Conformity to Federal Law Every filer feels this in at least one place on Schedule CA.
Standard Deduction
The federal and California standard deductions are not close. For 2025, California’s standard deduction is $5,706 for single filers and $11,412 for married couples filing jointly.3Franchise Tax Board. Deductions The federal standard deduction under the One Big Beautiful Bill Act is $15,750 for single filers and $31,500 for married couples filing jointly in 2025, rising to $16,100 and $32,200 for 2026.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The practical result: many taxpayers take the standard deduction on their federal return and itemize on their California return. A married couple with, say, $20,000 in property taxes, mortgage interest, and charitable contributions will not clear the federal $31,500 threshold, but will clear California’s $11,412 easily. That means tracking deductible expenses even in years you don’t need them federally.
Itemized Deduction Differences
State and Local Taxes
The federal SALT deduction cap was $10,000 under the original Tax Cuts and Jobs Act. The One Big Beautiful Bill Act raised the cap to $40,000 for taxpayers with modified adjusted gross income under $500,000, phasing back down to $10,000 for higher earners.5Internal Revenue Service. How to Update Withholding to Account for Tax Law Changes for 2025 California has no cap. If you pay $60,000 in property taxes and other deductible state and local taxes, the full amount is deductible on your California return.
One caveat: California does not let you deduct California state income tax on your California return. The no-cap advantage shows up on property taxes and, for those who choose it, the sales tax deduction.
Home Mortgage Interest
California allows you to deduct mortgage interest on up to $1,000,000 in acquisition debt. The federal limit is $750,000.3Franchise Tax Board. Deductions If you bought after December 15, 2017, with a mortgage between those two figures, the extra interest is deductible on Schedule CA as a subtraction even though you lost it federally.
Capital Gains Get No Break
Federally, long-term capital gains are taxed at 0%, 15%, or 20%, all well below ordinary income rates. California offers no preferential rate. Short-term and long-term gains alike are taxed as ordinary income.6Franchise Tax Board. Capital Gains and Losses With California’s top marginal rate at 13.3%, a high-income seller of appreciated stock can face a combined federal-plus-state rate north of 33%. Holding period doesn’t help you at the state level.
Health Savings Accounts
California does not recognize the federal tax treatment of Health Savings Accounts. Federally, HSA contributions are deductible, growth is tax-free, and qualified medical withdrawals are untaxed. California treats an HSA like any other investment account: contributions aren’t deductible, and interest, dividends, and capital gains inside the account are taxable each year.
AB 781, which would have aligned California with federal HSA rules for tax years 2026 through 2030, failed in the legislature in early 2025.7California Franchise Tax Board. Bill Analysis AB 781 – Health Savings Account Deduction Conformity Unless new legislation passes, you add back your federal HSA deduction on Schedule CA and separately track the account’s investment income for state purposes. If you have an HSA, your state return is more complicated than your federal one every year.
Business Depreciation and Losses
Bonus Depreciation
California has never conformed to federal bonus depreciation, and SB 711 continued that non-conformity.1California Franchise Tax Board. Bill Analysis SB 711 – Conformity Act of 2025 Any bonus depreciation you claim federally gets added back on your California return, and the asset is depreciated over its regular useful life instead. Expect a higher California tax bill in the purchase year, with larger deductions in later years.
Section 179 Expensing
The federal Section 179 limit for 2026 is over $1 million. California’s limit is $25,000, and it begins phasing out once total qualifying property placed in service exceeds $200,000.8Franchise Tax Board. 2025 Instructions for Form FTB 3885 A business that expenses $500,000 of equipment federally can only expense $25,000 for California, depreciating the remainder over its useful life.
Net Operating Loss Suspension
California has suspended the use of net operating loss carryover deductions for tax years beginning on or after January 1, 2024, and before January 1, 2027. Accumulated NOLs generally cannot offset California income during that window. The exception matters: taxpayers with net business income or modified adjusted gross income below $1,000,000, and those with disaster loss carryovers, are not affected.9Franchise Tax Board. 2024 Instructions for Form FTB 3805V – Net Operating Loss Computation
You still compute and carry over the NOL; you just can’t deduct it during the suspension. California extends the carryover period to compensate: losses incurred before 2024 get three extra years, losses from 2024 get two extra years, and losses from 2025 get one extra year.10Franchise Tax Board. Tax News March 2025 Federal law has no comparable suspension, so this is purely a California cash-flow issue.
The Pass-Through Entity Elective Tax
California offers a partial workaround for the federal SALT cap for owners of qualifying partnerships and S corporations. The entity elects to pay a 9.3% tax at the entity level on its qualified net income, deducts that payment as a business expense on its federal return, and each owner claims a credit on their California return for their share.11Franchise Tax Board. Pass-Through Entity Elective Tax
The election is available for tax years through 2030. Publicly traded partnerships and entities in a combined reporting group don’t qualify. For election years beginning in 2026, the entity must make an initial payment by June 15 of the election year, and missing it reduces each owner’s credit by 12.5% of their share of the shortfall.11Franchise Tax Board. Pass-Through Entity Elective Tax If your individual SALT deduction is capped federally and you own an eligible pass-through, the election is worth running numbers on every year.
California’s Individual Health Care Mandate
California imposes its own individual health care mandate. The federal penalty was reduced to zero starting in 2019, but California enacted a state version effective 2020. For a full uninsured year in 2025, the penalty is at least $950 per adult and $475 per dependent child under 18, calculated as the greater of a flat dollar amount or a percentage of household income, capped at the average cost of a bronze plan through Covered California.12Covered California. Penalty Details and Exemptions
Several exemptions apply. Coverage gaps of three consecutive months or less don’t trigger the penalty. You’re also exempt if coverage would have cost more than 7.28% of household income for 2025, if your income is below the filing threshold, or if you belong to a recognized health care sharing ministry, among other situations.13Franchise Tax Board. Health Care Mandate The penalty is computed on your state return, so your California filing asks questions your federal filing no longer does.
Filing Schedule CA and Watching the Deadlines
Every difference between federal and California tax law flows through Schedule CA (California Adjustments), filed with Form 540. The form walks your federal return line by line. Column B is for subtractions: income California doesn’t tax, or deductions California allows beyond the federal amount, such as the mortgage interest on debt between $750,000 and $1,000,000. Column C is for additions: deductions you claimed federally that California disallows, such as bonus depreciation or the HSA deduction. The net result adjusts your federal AGI into your California AGI.14State of California Franchise Tax Board. 2025 Instructions for Schedule CA (540)
California’s individual filing and payment deadline is April 15, 2026, matching the federal deadline. The state grants an automatic extension to file through October 15, 2026, with no application required. That extension covers filing only. Any tax you owe is still due April 15, and interest accrues from that date on unpaid balances.15Franchise Tax Board. Due Dates – Personal
Estimated tax payments follow a quarterly schedule: April 15, June 15, and September 15 in 2026, with the fourth installment due January 15, 2027. Underpayment penalties are based on how many days each payment is late, multiplied by the applicable interest rate for that installment period.16Franchise Tax Board. Common Penalties and Fees Given that so many California adjustments push state taxable income above the federal amount — bonus depreciation addbacks, HSA deductions, the NOL suspension — quarterly payments calculated from federal liability alone tend to fall short. Run the California numbers on their own.