R&D Binder

Short answer. California research credit you cannot use carries forward until it is used up, with no expiration year. SB 711 did not change that. For tax years beginning before January 1, 2030, SB 122 caps the use of business credits at $5 million a year, and credit held back by the cap is not lost: you can elect on FTB 3870 to have it refunded over five years.

Key facts

CarryforwardIndefinite, until used
RefundableNo (nonrefundable credit)
Annual cap$5 million of business credits, tax years beginning before Jan 1, 2030 (SB 122)
Cap-blocked creditRefund election on FTB 3870, paid 20% a year over 5 years
FormFTB 3523
StatuteCal. Rev. & Tax. Code 23609 (corporate); 17052.12 (personal)

How the carryforward works

California's credit is nonrefundable, but the unused part never expires.

You compute the credit on FTB 3523, at 15 percent under the regular method or under the Alternative Simplified Credit at 3 percent (1.3 percent if any of the prior three years had no QRE) for tax years beginning on or after January 1, 2025. If the credit is larger than your California tax, the excess carries forward to later years until it is exhausted.

This was already the rule before SB 711. The 2024 FTB 3523 instructions, written before SB 711, describe the same indefinite carryforward, and the statute as amended by SB 711 keeps it. The method changes in SB 711 affect how much credit you earn, not how long you can hold it.

The $5 million cap, and what happens to blocked credit

The cap applies to how much credit you use in a year. Credit held back by the cap stays available.

SB 122 (Chapter 23, signed June 29, 2026) extends the $5 million annual cap on the use of business credits, including the research credit, through tax years beginning before January 1, 2030. Credit that the cap keeps you from using is not lost.

You can also elect on FTB 3870 to convert cap-blocked credit into a refund, paid over five years at 20 percent a year. Whether to take that refund or keep the credit for later years is a planning call your CPA makes with you.

An illustrative example

Round numbers, chosen for the arithmetic, not taken from any real company.

A pre-profit SaaS company earns $80,000 of California research credit in each of 2025, 2026, and 2027 and owes no California tax, so it carries $240,000 forward. It becomes profitable in 2028 and owes $100,000 of California tax in each of 2028 and 2029. Ignoring new credit earned in those years, it uses $100,000 in 2028 (leaving $140,000) and $100,000 in 2029 (leaving $40,000). The last $40,000 carries into 2030 with no deadline. The $5 million cap never comes into play at this size.

Now take a larger company that could use $7 million of business credits in a tax year beginning before 2030. The cap lets it use $5 million. The other $2 million either carries forward or, by election on FTB 3870, comes back as $400,000 a year for five years.

No expiry means the records have to last

An indefinite carryforward can keep a 2025 credit in play for a decade or more.

The longer a credit sits unused, the older the evidence behind it gets. R&D Binder produces the federal Section 41 documentation the California credit rests on: the business components, the four-part test analysis, and the qualified research expense workpaper, built from your commit history and payroll. Your CPA files FTB 3523, and whether your facts qualify is the CPA's call.

The full state overview, the federal Section 41 work it builds on, and related state guides:

Sources

Every claim on this page traces to a primary authority. Each source below is independent and verifiable.

Get documentation built to survive an exam

R&D Binder produces the federal Section 41 binder and the California state workpaper from one engagement, both built to survive an FTB or IRS exam.

Estimate your credit See the sample binder