Net Operating Loss (NOL)

A net operating loss arises when a taxpayer's allowable deductions exceed gross income for the year, most often from a business losing money or from large accelerated depreciation. Under current law, NOLs arising after 2020 cannot be carried back (with narrow exceptions like farming) but carry forward indefinitely, and in any future year they can offset only up to 80% of taxable income, leaving at least 20% exposed to tax. For pass-through owners the loss first survives the basis, at-risk, passive activity, and excess business loss gates before becoming an NOL on the personal return. NOLs are a real asset: they should be tracked on a schedule year by year, factored into estimated payments, and considered in decisions like Roth conversions or gain harvesting in loss years, which can soak up income at zero or low rates. Corporate NOLs stay inside the corporation and are limited after ownership changes under Section 382.