A Net Operating Loss (NOL) occurs when a business's allowable tax deductions exceed its taxable income for a tax year. NOLs can be valuable tax assets that reduce future tax liabilities.

Current NOL Rules (Post-2017)

• No Carryback: NOLs arising after 2017 cannot be carried back (except farming)
• Indefinite Carryforward: Post-2017 NOLs can be carried forward indefinitely
• 80% Limitation: NOL deduction limited to 80% of taxable income
• No Expiration: Unlike pre-2018 NOLs, no 20-year expiration

Pre-2018 NOL Rules

• 2-year carryback, 20-year carryforward
• 100% of income offset allowed
• Expire after 20 years if unused
• Special rules for certain industries

Key Considerations

• Section 382: Ownership changes can severely limit NOL usage
• State Rules: States have varying NOL rules and conformity
• AMT: Different rules apply for Alternative Minimum Tax
• Consolidated Returns: Special rules for affiliated groups

Strategic Planning

• Time income recognition to maximize NOL usage
• Consider entity structure changes to optimize usage
• Monitor expiration dates for pre-2018 NOLs
• Plan for ownership changes that might limit NOLs
• Coordinate federal and state NOL strategies