Double Check Please - NOL not limited to 80%

[BulldogTom]

Corp Taxpayer has NOL's from 2015-2019 that have not been used up as well as a 2021 NOL.   The 80% rule does not apply to any of the earlier NOLs, correct?   Only the 2021 NOL is limited to 80% of income.

It has been a long Month.   Seems like April 1 everyone decided it was time to get their taxes done.   I have been going non-stop since then.

Thanks

Tom
Longview, TX

[Lee B]

https://www.irs.gov/newsroom/net-operating-losses

 

Example:

"Alternatively, assume a corporation was formed in 2017. In 2022, the company has $200 of income and has NOL carryforward of ($20) from 2017 and ($180) from 2021. Section 172(a)(2) provides that the NOL deduction equals the 2017 NOL15 plus the lesser of the 2021 NOL16 ($180) or 80% of $200 ($160). In that case, net taxable income would equal $200 less the 2017 ($20) NOL and less the ($160) allowed NOL from 2021 = $20."

[BulldogTom]

So the 2015, 2016 and 2017 NOLs are fully deductible until exhausted just like the old rules?  The 2018, 2019 and 2021 NOLs have the new 80% of income limitations on them?  And if the corp uses the 2017 and 2018 NOLs in the same year, the example above is how to allocate the NOLs to the income?

In my current situation, the 2015 NOL will cover the entire profit for the year so I can take income to $0 for 2022.

I think this is clear as mud.  Please correct me if I am wrong.

Thanks

Tom
Longview, TX

[Catherine]

34 minutes ago, BulldogTom said:

I think this is clear as mud.

I think your mud is clear on this one, and you can use up the 2015 NOL to offset the entire 2022 income. But then again, I'm speaking from within the mud myself.

[jklcpa]

16 hours ago, BulldogTom said:

And if the corp uses the 2017 and 2018 NOLs in the same year, the example above is how to allocate the NOLs to the income?

The NOL of the earliest year is used first until exhausted, and then the next most recent year, and so on. 

For your client, it sounds like the NOL from only the 2015 tax year will be used.

[BulldogTom]

Just to follow up and clear my thinking, the Cares Act only changed the carryback rules (suspended them for 2 years) and did not change the 80% rule for 2018 and forward NOLs?

Tom
Longview, TX

[DANRVAN]

On 4/7/2023 at 7:52 AM, BulldogTom said:

Just to follow up and clear my thinking,

The TCJA eliminated NOL carrybacks and permitted NOLs to be carried forward indefinitely. The CARES Act changes those rules temporarily by permitting NOLs incurred in 2018, 2019, or 2020 to be carried back for five years to the earliest year first and suspending the 80% taxable income limitation through 2020.

 

This is all spelled out in section 172.  There are special rules for farming.