Net Operating Losses for C Corporations: Carryforward Rules and 80% Limitation

What is a net operating loss (NOL) for a C corporation?

A net operating loss occurs when a C corporation's allowable tax deductions exceed its gross income in a given year. The resulting loss can be used to offset taxable income in other years, reducing the corporation's overall tax burden across multiple periods.

Can NOLs be carried forward?

Yes. NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely — there is no expiration. However, they are subject to the 80% limitation: the NOL deduction in any given year cannot exceed 80% of taxable income (computed without the NOL deduction).

Older NOLs from tax years beginning before January 1, 2018 follow the previous rules: a 20-year carryforward period but no 80% limitation.

Can NOLs be carried back?

Generally, no. The Tax Cuts and Jobs Act of 2017 eliminated the general 2-year carryback for most NOLs. The only exceptions are farming losses and losses of insurance companies (other than life insurance), which can still be carried back 2 years.

For farming losses, the corporation can elect to waive the carryback period and carry the loss forward only. This election is generally irrevocable.

What is the Section 382 limitation?

If a corporation undergoes an ownership change (generally, more than 50% of stock changes hands within a 3-year period), the amount of pre-change NOL carryovers that can be used to offset post-change taxable income is limited under Section 382.

The annual limit is the value of the corporation immediately before the ownership change multiplied by the long-term tax-exempt rate. This prevents acquiring companies solely for their NOL carryovers.