California’s SB 711 moved the state’s general IRC conformity date forward, which reduces friction in a lot of places. But if you’re an asset-heavy business (construction, logistics, manufacturing, real estate, trades), the capex rules you care about are still a classic federal-vs-California split.

The outcome is predictable: federal assumptions can materially understate California taxable income and California cash tax. So if you’re planning a 2026 equipment refresh, you need to model CA separately.

1) Like-kind exchanges: California is aligned with the TCJA “real property only” direction

What business owners remember: “1031 lets me swap assets and defer the gain.”

What changed under TCJA (federal): For exchanges after Dec 31, 2017, §1031 is generally limited to real property (not held primarily for sale). That largely shuts down the old world where people tried to use like-kind treatment on certain personal property swaps.

Where California lands: California’s SB 711 analysis explains that California conforms to the federal real-property limitation for exchanges after Dec 31, 2017 (with state timing and historic individual-level qualifications), and SB 711 tightens California’s modified conformity approach by adding a sunset to those qualification rules.

Practical impact (what to tell clients):

If you’re swapping equipment, vehicles, machinery, or other personal property, don’t plan on a California 1031 deferral.
For real estate deals, 1031 remains a live planning tool, but you still need tight execution and documentation.

Action item: If a client’s deal team is talking about “doing it as a 1031,” confirm early whether it’s real property and whether California treatment matches the model—before agreements and closing timelines are locked.

2) Bonus depreciation: still not a California thing (and SB 711 didn’t change that)

Federal bonus depreciation is the “big lever” that lets businesses write off a large portion of eligible asset cost up front under IRC §168(k).

California explicitly does not conform to IRC §168(k). FTB’s depreciation guidance lists §168(k) as an area where California law does not conform.

So even when federal shows a huge first-year deduction, California usually requires you to depreciate the asset over time under California rules—which means:

higher California taxable income in the year of purchase
more California current tax than owners expect
ongoing state/federal depreciation differences that have to be tracked

“But California has something called ‘additional first-year depreciation’…”

Yes—California has its own separate concept that is not federal bonus depreciation. The FTB 3885 instructions describe an election to deduct up to 20% of qualifying property in the year acquired, but it’s capped (the instructions note a maximum additional first-year depreciation deduction of $2,000) and comes with specific definitions and limitations.

Translation: for meaningful capex, California’s version is usually a rounding error compared to federal bonus depreciation.

3) §179 in California: the cap is still $25,000, and it phases out fast

Small businesses love §179 because it’s simple: “expense the equipment now.”

California allows §179—but under very different limits than federal.

FTB’s corporate depreciation instructions are blunt:

Maximum CA §179 deduction: $25,000
Phaseout threshold: the deduction is reduced if the cost of qualifying §179 property placed in service is more than $200,000

FTB also notes California does not allow the §179 election for off-the-shelf computer software.

Practical impact:

If you place more than $200,000 of qualifying assets in service, your CA §179 starts getting squeezed.
If you’re buying meaningful equipment (common for construction and manufacturing), the CA §179 benefit may be minimal—even when federal expensing is large.

What this means in the real world (simple example)

Scenario: a contractor buys and places into service $400,000 of equipment in 2026.

Federal: could be heavily front-loaded through bonus depreciation and/or §179 (depending on federal rules and eligibility).
California: no §168(k) bonus depreciation, and §179 is capped at $25,000 with a phaseout starting at $200,000—so California taxable income can be dramatically higher in year 1.

Translation for owners: “We got a big deduction federally, so we’re fine” can be the exact setup for an ugly California April payment.

The accounting/provision angle (why controllers care)

If you’re doing a tax provision or even a basic forecasting model:

this creates a recurring state/federal depreciation difference
it can drive deferred tax movements and state ETR volatility
it increases the need for a clean, auditable state fixed asset rollforward

You don’t want to discover missing state depreciation schedules when you’re already under a filing deadline.

2026 Capex checklist (do this before you approve the spend)

Run a California cash-tax model separate from federal (don’t rely on blended rates).
Maintain a California fixed asset ledger (or ensure your CPA/tax software is doing it correctly).
Flag any plan that assumes bonus depreciation for California—because it won’t be there.
If you’re counting on §179 in California, sanity-check the $25,000 / $200,000 limits and whether the purchase mix still qualifies.
If anyone says “1031,” confirm it’s real property and confirm the state treatment before deal terms are final.