NOLs are negative taxable income on the tax return; tax-deductible expenses exceed taxable revenues. No tax is payable in the year an NOL occurs. Tax laws permit an NOL to be used to reduce taxable income in subsequent profitable years:
NOL carryforward creates a deferred tax asset.
The NOL tax benefit should be recognized in the year the loss occurs.
NOLs do not expire.
They can be carried forward indefinitely until they are used.
Companies are limited to offsetting a maximum of 80% of taxable income with NOL carryforwards in any given year.
For tax years beginning before January 1, 2018, companies could elect to carry an NOL back to the past two years and carryforward any amount of NOL that remained for up to 20 years.
This produced an immediate refund of taxes paid in those prior years.
For tax years beginning after December 31, 2017, NOL carrybacks are not allowed for most companies. However, the old rules still apply for property and casualty insurance companies, and some farm-related businesses.
These companies are allowed to carry NOLs back two years and forward indefinitely and there is no 80% limitation.Â
Also, many states continue to allow NOL carrybacks with respect to calculating state income taxes.