What is the maximum amount of taxable income that a net operating loss (NOL) can be deducted against in a single year?
Understand the Problem
The question is asking about the specific limit on the amount of taxable income that can be offset by a net operating loss deduction within a single tax year, touching upon tax regulations-related concepts.
Answer
80% of taxable income.
The final answer is that a net operating loss (NOL) can be deducted against a maximum of 80% of taxable income in a single year for losses incurred in tax years beginning after 2020.
Answer for screen readers
The final answer is that a net operating loss (NOL) can be deducted against a maximum of 80% of taxable income in a single year for losses incurred in tax years beginning after 2020.
More Information
Under the Tax Cuts and Jobs Act, the deduction for NOLs is limited to 80% of taxable income for losses incurred in tax years beginning after December 31, 2017. However, losses occurring in tax years beginning before 2021 can be deducted against 100% of taxable income.
Tips
A common mistake is misapplying the 80% limit to losses generated in earlier tax years, which don't have this restriction.
Sources
- Net Operating Loss (NOL): Definition and Carryforward Rules - investopedia.com
- IRC Code Section 172 (Net Operating Loss Deduction) - Tax Notes - taxnotes.com
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