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DID YOU KNOW? – The Tax Cuts and Jobs Act introduces a net operating loss (NOL) income limitation

February 14, 2018 | Mitch Estling

Did you know:

The Tax Cuts and Jobs Act (TCJA) introduces a limitation on the amount of NOLs that a corporation may deduct in a single tax year under section 172(a) equal to the lesser of the available NOL carryover or 80% of a taxpayer’s pre-NOL deduction taxable income (the “80% limitation”).  This limitation applies only to losses that occur in tax years that begin after December 31, 2017.

What it means:

This effective date means losses that arose in tax years that began before January 1, 2018 will not be subject to the 80% limitation. Because of this, taxpayers will have to distinguish between the two types of losses when computing the NOL deduction. Pre-2018 losses should be tracked separately from post-2017 losses.

And here are the details:

NOLs incurred in tax years ending after December 31, 2017 can no longer be carried back to an earlier tax year (except for certain farming losses). Affected NOLs can be carried forward indefinitely.  This means that fiscal year taxpayers with NOLs arising in tax years beginning prior to December 31, 2017 and ending after that date would not be subject to the 80% limitation, but also would only be allowed to carryover that loss indefinitely.

Need help understanding the details? Start Here.

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