Take Full Advantage of Your NOLs – Cristina Bucksbaum, Senior Tax Manager

Small business Tax

The world of NOL (net operating losses) rules can be exasperating and confusing, but very useful when they can be applied. To fully utilize all the advantages of NOLs, here are a some of the critical rules we must consider when addressing your audit/tax strategic plan:

+ Under the TCJA - federal NOLs arising in tax years beginning after 2017, the NOL deduction is limited to 80% of taxable income in any one tax period. The loss may be carried forward indefinitely until exhausted but not be carried back (except for certain farming).

+ For NOLs arising before 2018, the carryover period is 20 years and the carryback period generally is 2 years.

+ Under the 2020 CARES Act – federal NOLs arising in a tax year beginning after 2017, and before 2021, to be carried back to each of the 5 tax years preceding the tax year of such loss.

+ The CARES Act temporarily repeals the TCJA 80% limitation for NOLs generated in tax years beginning before 2021. State NOL allowances may differ from federal.

The following graph may help explain some of the detail and changes.

TAX TREATMENT FOR NOLS AND DEDUCTION LIMITATIONS
             
             

YEAR NOLS AROSE

 

CARRYBACK PEROD

 

CARRYFORWARD PERIOD

 

DEDUCTION LIMITATION
             
             

2017 CALENDAR Year; 2017/2018 Fiscal Year; and All Preceding Years

  

Two Years

  

20 years

  

None

 

 

 

 

 

 

 
             

Tax Years Beginning in 2018, 2019, or 2020

  

Five Years

  

Indefinite

  

If carried to a tax year beginning before 2021: None 

If Carried to a tax year beginning in 2021 or after: Modified 80% Limitation

 

 

 

 

 

 

 
             

Tax Years Beginning in 2021 and All Following Years

  

None

  

Indefinite

  

If carried to a tax year beginning before 2021:  None   If carried to a tax year beginning in 2021 or after:  Modified 80% Limitation
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