NOL Provisions In Final Tax Reform Bill

NOL Provisions in Tax Cuts and Jobs Act

This article will focus on the changes made by the recently enacted Tax Cuts and Jobs Act to the provisions regarding net operating losses (NOLs). These significant changes are outlined in the table below:








NOL Provisions in Final Tax Reform Bill

 

Current
Law

Tax Bill

NOL Deduction
Limitation

NOLs
can be deducted at up to 100% of taxable income (some items are disregarded
in the calculation of taxable income)

Effective
as of 2018, the NOL deduction is limited to 80% of taxable income (determined
without regard to the NOL deduction)

General
Treatment of NOL Carryovers

A NOL may be carried back two years and carried
forward 20 years to offset taxable income in such years; taxpayers can forgo
two-year carryback and only carry the amount forward 20 years

A NOL may be carried forward indefinitely;
carrybacks are eliminated

 

The new carryover rules in general apply only to
NOLs arising after 2017. Thus the taxpayer must essentially maintain two NOL
carryover schedules

Special NOL
Carryover Periods

·      
Specified
liability losses can be carried back 10 years

·      
Farming losses
can be carried back five years

·      
Three-year
carryback available for NOLs attributable to casualties or disasters and of
small businesses or farms (if the loss was not eligible to be a farming loss)
attributable to a federally declared disaster

·      
Real estate
investment trusts (REITs) cannot carryback NOLs

·      
Corporate
equity reduction interest losses cannot be carried back to a tax year prior
to the  corporate equity reduction
transaction

Any
part of a NOL for the tax year which is considered a farming loss can be
carried back two years. A “farming loss” is the lesser of:

(1)  The amount that would be the NOL for the tax year if
only income and deductions attributable to farming businesses are taken into
account, or

(2)  The amount of the NOL for the tax year.

A
taxpayer is entitled to forgo the farming loss carryback. All previous
special NOL carryover periods are eliminated.

Special rules
for Property and Casualty Insurance Companies

No special rules; follows the general provisions

NOL deduction can be taken for 100% of taxable
income; NOLs can be carried back two years and forward 20

Taxable
Income Calculation for REITs

No
special limitation calculation

Taxable
income for purposes of 80% limitation is real estate investment trust taxable
income computed without regard to deduction for dividends paid

About The Author

Daniel Quintana

Daniel Quintana of Kurtz & Company, P.C. in Dallas Texas. https://www.linkedin.com/in/drquintana