New Jersey Enacts Temporary Limitation on Corporation Business Tax NOL Deductions

Key Takeaways

• New Jersey’s FY 2027 budget temporarily limits Corporation Business Tax NOL deductions to $1 million per tax year for certain tax years ending between July 31, 2026, and July 31, 2030.
• The limitation could accelerate CBT liability for corporations with significant New Jersey NOL carryforwards, particularly in years with large taxable gains.
• Companies planning asset sales or other major transactions should revisit New Jersey tax projections before completing those transactions.
• The budget package also includes additional tax changes affecting employer healthcare assessments, Gross Income Tax adjustments, and the New Jersey Child Tax Credit.

What the New Jersey NOL Limitation Changes

As part of its FY 2027 budget package, New Jersey enacted a temporary limitation on the use of net operating loss (NOL) deductions for Corporation Business Tax (CBT) purposes. For tax years ending on or after July 31, 2026, but before July 31, 2030, a taxpayer's aggregate New Jersey NOL deduction generally cannot exceed $1 million per tax year. To help offset the temporary limitation, taxpayers whose deductions are deferred because of the cap generally receive an additional six years beyond the standard 20-year carryforward period to use those NOLs.

Impact on Asset Sales and Transaction Planning

The temporary limitation will be especially important for corporations with substantial New Jersey NOL carryforwards. While the legislation preserves those carryforwards, it delays when they can be deducted, potentially increasing current CBT liability even though remaining NOL deductions remain available for future tax years.

Another area where the limitation is critical is asset sales. C corporations have used available NOL carryforwards to offset gains recognized on the sale of appreciated assets. Under the temporary limitation, corporations with more than $1 million in available NOL deductions cannot fully offset taxable gain in the year of the transaction, accelerating NJ CBT liability while deferring the remaining deductions to future tax years. Although the legislation provides an additional six years to utilize NOLs deferred by the limitation, corporations that generate little or no future New Jersey taxable income could be unable to utilize those deferred NOLs before expiration.

For example, a corporation with $8 million of New Jersey NOL carryforwards recognizes $6 million of gain from the sale of an appreciated asset. Before the temporary limitation, the corporation could have fully offset the gain with its available NOL deductions. Under the new law, only $1 million of NOL deductions can be used in that tax year, leaving the remaining $5 million of gain subject to New Jersey CBT, with the remaining $7 million of NOL carryforwards available for future tax years.

Planning Considerations for New Jersey Taxpayers

Taxpayers with significant New Jersey NOL carryforwards should evaluate how the temporary limitation affects projected taxable income, deferred tax assets, estimated tax payments, and the timing of significant transactions. Companies contemplating asset sales or other transactions expected to generate substantial taxable income should revisit their New Jersey tax projections before completing those transactions.

Other New Jersey Tax Changes in the FY 2027 Budget

Additionally, the legislation modifies the Alternative Business Calculation Adjustment under the Gross Income Tax beginning with tax year 2026. Taxpayers with gross income of $500,000 or less continue to qualify for the existing 50% adjustment. Taxpayers with gross income between $500,000 and $1 million will now only qualify for a reduced adjustment of 25%, with the adjustment eliminated for taxpayers with gross income exceeding $1 million.

The budget also temporarily expands the New Jersey Child Tax Credit for tax years 2026 through 2028. The legislation increases each credit amount by 25%, raising the maximum credit from $1,000 to $1,250 while increasing the credit available under the remaining income tiers. Eligible taxpayers will be able to claim larger credits during the three-year expansion.

Next Steps for Businesses

If you have questions about how these changes could affect your business, contact EisnerAmper's State and Local Tax Services team. Our professionals can help evaluate the impact of the new rules and identify planning opportunities based on your company's unique tax profile and business objectives.