fbpx

< Back to Thought Leadership

Net Operating Loss Changes under the TCJA

Prior to the Tax Cuts and Jobs Act (TCJA), Net Operating Losses (NOLs) generated allowed taxpayers to carry back the loss two years and/or carry it forward up to 20 years. In addition to the carryback/carryforward provisions, taxpayers could fully offset taxable income if not limited by the IRC section 382 limitations. However, now the TCJA has provided changes to the carryback/carryforward provisions and set a new limitation on NOL utilization.

Changes to Carryback/Carryforward Provisions

The TCJA has eliminated the two-year carryback provision that was allowed prior to the newly-enacted legislation. Under the TCJA, taxpayers will carry forward the NOL indefinitely and not be limited to a 20-year carryforward provision. However, NOLs generated from a farming loss are allowed to retain the two-year carryback provision.

New NOL Limitation

The TCJA introduced a new 80% NOL limitation starting with NOLs generated after January 1, 2018. Therefore, a taxpayer will only be able to utilize 80% of the NOL to offset taxable income, and the remaining will be carried forward indefinitely. However, NOLs generated prior to January 1, 2018, are not subject to the 80% NOL limitation and retain the ability to deduct at 100%. Therefore, pre-2018 losses should be tracked separately from post-2017 losses in order to correctly compute the NOL deduction.

Also, unless and until a technical correct is enacted, fiscal year taxpayers with NOLs arising in tax years beginning before December 31, 2017, will be subject to a hybrid of the new and old rules for the fiscal year end. Generally, the 80% limitation will not apply.  However, they are also not eligible for the carryback provision and must carry forward indefinitely.

When calculating potential NOL amounts, C corporations are not allowed to take into account the new deduction for foreign-derived intangible income and the global intangible low-tax income under Code section 250. For pass-through business taxpayers, the new deduction under Sec 199A is not allowed in determining the NOL amount.

Looking Forward

The impact of these changes makes it imperative for you to understand the timing of your income and deductions as you look for various tax planning strategies. As a result of the new limitation, you cannot fully rely on NOL carryforwards to eliminate your federal tax liability.

If you have questions about how these changes affect you, or if you would like to discuss other tax planning strategies, please contact us.

Federal Perkins Loan Program Announcements

Federal Perkins Loan Program Announcements

Electronic announcements May 3, 2019 and May 24, 2019 Colleges and universities who participate in the Federal Perkins Program are no longer able to award or disburse new Perkins Loans. The Department of Education (“Department”) continues to release new announcements and thus, changes and updates to the program that participating colleges and universities should consider […]

Learn More
Credits and Incentives An extra return on your investments.

Credits and Incentives: An extra return on your investments.

The topic is always in the news — a state or city offering a major corporation a generous package of incentives to relocate or even to keep their operations in place. However, did you realize, you do not necessarily have to be a Fortune 500 company to negotiate those benefits? Because state and local incentives […]

Learn More
Contract Labor Impact on Wage Index

Contract Labor: Impact on Wage Index

Outsourcing is a common practice in all areas of business, including the healthcare sector. Although this is a major expense for a hospital, it can have an effect on the wage index factor impacting Medicare reimbursement. The wage index factor is determined through a hospital’s wage index average hourly wage which includes both employees on […]

Learn More