Tax Reform Legislation will Overhaul NOL Provisions

Both the House and Senate versions of tax reform propose significant changes to the treatment of net operating losses (NOLs). The current tax code generally allows a two-year carry back deduction of NOLs and a carry forward of 20 years to offset future income.

 

The House bill proposes the following changes:

  • NOLs cannot offset more than 90% of current taxable income with any unused portion allowed as an indefinite carryforward.
  • Taxpayers cannot carryback NOLs (with certain exceptions).
  • A significant exception allows taxpayers to carry back NOLs attributable to tax years beginning in 2017 or earlier. However, this exception does not apply to NOLs attributable to the proposed 100% expensing provision contained in the House bill.
  • The bill increases NOLs arising in tax years after 2017 by a compound annual variable interest factor. The annual interest factor equals the annual Federal short-term rate as of the last month of the tax year plus four percentage points.

 

The Senate bill proposes the following changes:

  • The bill limits the deduction of NOLs arising between December 31, 2017 and January 1, 2023 to 90% of current taxable income.
  • Unlike the House bill, the Senate version limits the deduction of NOLs arising after December 31, 2022 to 80% of current taxable income.
  • In general, taxpayers can indefinitely carry forward NOLs arising after December 31, 2017.
  • The bill disallows the carry back of NOLs arising after December 31, 2017.

 

About The Author

Daniel Quintana

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