NOL Carryback
Previously, under Code §172(a), amount of NOL deduction equal to lesser of:
Aggregate of NOL carryovers to such year and NOL carrybacks to such year, or 80% of taxable income computed without regard to any NOL carryover.
Bottom line: NOLs were subject to taxable-income limitation and could not fully offset income.
CARES Act temporarily removes 80% taxable income limitation.
80% limitation reinstated for tax years beginning after 2020 but before any Sec. 199A deduction and the utilization of any pre-2018 NOL carryovers.
Example: Individual has a taxable income in 2021 of $100,000 before a QBI deduction of $30,000. They also have a pre-2018 NOL carryforward of $150,000. The reinstatement of the 80% taxable income limitation in 2021 would result in a cap of $80,000 (80% x $100,000) on the utilization of the $150,000 NOL carryforward. In other words, the $100,000 taxable income amount would not have to first be reduced by the QBI deduction of $30,000.
Effective date
Applies to NOLs arising from tax years beginning after Dec. 31, 2017, and to tax years beginning on or before Dec. 31, 2021.
Authored by:
Dr. John Connors, JD, CPA, LLM
Tax Educator’s Network, LLC
For subscription information on Dr. John Connors’ educational materials, click here
