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  • Peter F Cicciari EA

IRS


California Conformity/Nonconformity to CAA Provisions CAA provision Conformity/Nonconformity California treatment PPP loan forgiveness exclusion from COD Conformity2 (however, see next entry) No adjustment required No expense reduction for expenses paid with PPP loan amounts forgiven Nonconformity3 Although the forgiveness is not COD income, taxpayers must reduce expenses paid with forgiven loan amounts (see “FTB working on guidance for reporting PPP forgiveness” below). This will most likely require a manual override adjustment. Legislation has been introduced (AB 281) to conform California law to the federal law allowing the deduction of expenses paid with forgiven PPP debt Exclusion of Economic Impact Payments Conformity No adjustment required Increased unemployment benefits extended Nonconformity4 California does not tax UI benefits 100% business meal deduction for meals provided by a restaurant for purchases paid or incurred after 2020 and before 2023 Nonconformity. California never conformed to the TCJA repeal of the entertainment deduction and continues to limit business meals to 50%5 Adjustment required Extends CARES Act charitable contribution above-the-line deduction and increase of charitable deduction limits to apply to cash contributions made in 2021 Nonconformity6 Adjustments required. No above-the-line deduction on the California return for taxpayers claiming standard deduction. Taxpayers who itemize must adjust the Schedule A deduction to reflect California’s lower charitable contribution limits Permanent expansion of employer assistance education program exclusion to include employee’s student loan payments made by employer Nonconformity Increased wages adjustment required. Employees may also claim an interest deduction on their California return because the payment is included in taxable income Expansion of teachers’ expense above-the-line deduction for purchases of personal protective equipment, cleaning supplies, etc. Nonconformity. California has never conformed to the teachers’ expense above-the-line deduction7 Increase AGI and miscellaneous itemized deductions subject to 2% Repeal of above-the-line deduction for qualified tuition and fees, effective beginning with 2021 tax year Conformity. California has never conformed to the deduction for tuition and fees8 Because the federal repeal does not apply until 2021 return, an adjustment is still required on 2020 California return 7.5% medical expense deduction threshold made permanent Conformity. California never conformed to the scheduled increase to 10%9 No adjustment required Extension of qualified principal residence COD exclusion Nonconformity10 Adjustment may be required. (Remember, taxpayers may still qualify for an insolvency exclusion on their California return) Five-year extension of IRC §181 film and television cost expensing Nonconformity11 California costs are capitalized and depreciated Permanent extension of IRC §179D energy efficient commercial buildings deduction Nonconformity12 California costs are capitalized and depreciated Retirement provisions that allow:

Taxpayers to make penalty-free withdrawals from money purchase pension plans for COVID-19–related expenses; Partial plan termination reprieves; Penalty-free withdrawals of up to $100,000 for qualified disaster distributions; and Recontribution of retirement plan withdrawals for home purchases that couldn’t be completed due to disasters Conformity13 No adjustments required Increased retirement plan loan limitations for disaster victims Nonconformity14 (Note: California did conform to increased loan limitation treatment on COVID-19–related loans) Loan amounts in excess of $50,000 treated as taxable distribution Earned Income Credit amendments allowing taxpayers to elect to base their credit on 2019 rather than 2020 earned income

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