Net Operating Losses and Tax Attribute Carryforwards
By SimplyCPA · 11 October 2026
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- Post-2017 NOLs: Carried forward indefinitely and limited to 80% of taxable income in the year used. No carryback, except for farming losses (two years) and certain insurance companies.
- Pre-2018 NOLs: Kept the old rules — up to 20 years forward and offset 100% of taxable income.
- Individuals: An NOL arises mainly from business losses; non-business deductions count only up to non-business income. Excess business losses also become NOL carryforwards.
- Other attributes: Corporate capital losses (3 back, 5 forward), charitable contributions (5 forward), general business credits (1 back, 20 forward), disallowed business interest (indefinite).
- Section 382: After an ownership change of more than 50 percentage points within three years, the annual use of NOLs is capped at the loss corporation's value × the long-term tax-exempt rate.
What an NOL is
A net operating loss arises when allowable deductions exceed gross income, after the modifications the Internal Revenue Code requires. For individuals, it's mainly business losses (including casualty losses and losses from rental property). Personal deductions such as the standard deduction don't create an NOL, and non-business deductions are limited to non-business income.
Current rules for NOLs arising after 2017
- Carryforward: indefinitely.
- Carryback: none, except farming losses (two years) and certain insurance company losses.
- 80% limit: the NOL deduction can't exceed 80% of taxable income computed without the NOL deduction (and, for individuals, without the QBI deduction).
Example: A corporation has a $500,000 NOL carryforward from 2023. In 2026 its taxable income before the NOL deduction is $400,000.
NOL deduction = 80% × $400,000 = $320,000. Taxable income = $80,000; tax = $16,800. The remaining $180,000 of NOL carries forward.
Other carryforwards
| Attribute | Carryback | Carryforward |
|---|---|---|
| Net capital loss — individual | None | Indefinite ($3,000/year against ordinary income) |
| Net capital loss — corporation | 3 years | 5 years (short-term character) |
| Excess charitable contributions | None | 5 years |
| General business credits | 1 year | 20 years |
| Disallowed business interest (Section 163(j)) | None | Indefinite |
| Suspended passive losses | None | Indefinite, released on full disposition |
| Excess business loss (Section 461(l)) | None | Becomes an NOL carryforward |
Section 382: limits after an ownership change
If the ownership of a loss corporation by 5% shareholders increases by more than 50 percentage points within a three-year testing period, the annual NOL deduction is limited to:
Value of the old loss corporation's equity immediately before the change × the IRS long-term tax-exempt rate.
Unused limitation carries forward and increases the next year's limit. If the business isn't continued for two years after the change, the limit is zero.
Planning points
- Because of the 80% limit, a business with large NOLs will still pay some tax in a profitable year.
- Accelerating income or deferring deductions can help use NOLs before an acquisition triggers Section 382.
- Deferred tax assets for NOLs need a valuation allowance assessment under ASC 740 — see deferred tax assets and liabilities.