Net Operating Loss (NOL)

A net operating loss (NOL) is when your deductions exceed your taxable income. It can reduce your taxable income in future years as well as your income tax.

Due to the Tax Cuts and Jobs Act (TCJA), the NOL has undergone some changes. In order to have an NOL, your loss must be caused by the deductions from your:

• Business or trade
• Work as an employee (Prior to 2018 and may not be deductible for some taxpayers from 2018 – 2025 due to the TCJA)
• Casualty and theft losses (due to a federally declared disaster)
• Moving expenses (Prior to 2018 although not deductible for most taxpayers for 2018 through 2025 due to the TCJA)
• Rental property

Prior to the TCJA, the IRS allowed businesses to carry NOLs forward 20 years or backwards two years. Now, they cannot carry back their losses but can carry their losses forward without a limitation on the time period.

As a reminder, partnerships and S corporations cannot use an NOL. On the other hand, partners or shareholders can individually figure their NOLs. They can do so by using their separate shares of the partnership’s or S corporation’s business income.

This entry was posted on Monday, November 16th, 2020 at 5:58 pm and is filed under Deductions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.