What's Happening?
New Jersey has enacted a temporary limitation on the use of net operating loss (NOL) deductions for Corporation Business Tax (CBT) purposes as part of its FY 2027 budget. For tax years ending between July 31, 2026, and July 31, 2030, the NOL deduction is
capped at $1 million per tax year. This limitation could accelerate CBT liability for corporations with significant NOL carryforwards, particularly in years with large taxable gains. The budget also includes other tax changes, such as modifications to the Gross Income Tax and an expansion of the New Jersey Child Tax Credit.
Why It's Important?
The temporary limitation on NOL deductions is crucial for corporations with substantial New Jersey NOL carryforwards, as it affects their tax planning and liability. Companies planning asset sales or major transactions need to reassess their tax projections to account for the limitation. While the legislation preserves NOL carryforwards, it delays their deduction, potentially increasing current CBT liability. This change could impact corporate financial strategies and necessitate adjustments in transaction planning to optimize tax outcomes.
What's Next?
Corporations affected by the NOL limitation should evaluate how it impacts their projected taxable income and tax planning strategies. Companies contemplating significant transactions should revisit their New Jersey tax projections to mitigate potential tax liabilities. EisnerAmper's State and Local Tax Services team can assist businesses in navigating these changes and identifying planning opportunities based on their unique tax profiles.
