26 USC 172 - Net operating loss deduction

U.S Code last checked for updates: May 03, 2024

§ 172.

Net operating loss deduction

(a)

Deduction allowed

There shall be allowed as a deduction for the taxable year an amount equal to—

(1)

in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and

(2)

in the case of a taxable year beginning after December 31, 2020, the sum of—

(A)

the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus

(B)

the lesser of—

(i)

the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or

(ii)

80 percent of the excess (if any) of—

(I)

taxable income computed without regard to the deductions under this section and sections 199A and 250, over

(II)

the amount determined under subparagraph (A).

For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.

(b)

Net operating loss carrybacks and carryovers

(1)

Years to which loss may be carried

(A)

General rule

A net operating loss for any taxable year—

(i)

shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and

(ii)

except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—

(I)

in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and

(II)

in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.

(B)

Farming losses

(i)

In general

(ii)

Farming loss

For purposes of this section, the term “farming loss” means the lesser of—

(I)

the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or

(II)

the amount of the net operating loss for such taxable year.

(iii)

Coordination with paragraph (2)

(iv)

Election

(C)

Insurance companies

In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year—

(i)

shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and

(ii)

shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.

(D)

Special rule for losses arising in 2018, 2019, and 2020

(i)

In general

In the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021—

(I)

such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss, and

(II)

subparagraphs (B) and (C)(i) shall not apply.

(ii)

Special rules for REITs

For purposes of this subparagraph—

(I)

In general

(II)

Special rule

(III)

REIT year

(iii)

Special rule for life insurance companies

(iv)

Rule relating to carrybacks to years to which section 965 applies

(v)

Special rules for elections under paragraph (3)

(I)

Special election to exclude section 965 years

(II)

Time of elections

(2)

Amount of carrybacks and carryovers

The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall—

(A)

be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,

(B)

not be considered to be less than zero, and

(C)

for taxable years beginning after December 31, 2020, be reduced by 20 percent of the excess (if any) described in subsection (a)(2)(B)(ii) for such taxable year.

(3)

Election to waive carryback

(c)

Net operating loss defined

(d)

Modifications

The modifications referred to in this section are as follows:

(1)

Net operating loss deduction

(2)

Capital gains and losses of taxpayers other than corporations

In the case of a taxpayer other than a corporation—

(A)

the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and

(B)

the exclusion provided by section 1202 shall not be allowed.

(3)

Deduction for personal exemptions

(4)

Nonbusiness deductions of taxpayers other than corporations

In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer’s trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence—

(A)

any gain or loss from the sale or other disposition of—

(i)

property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or

(ii)

real property used in the trade or business,

shall be treated as attributable to the trade or business;

(B)

the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;

(C)

any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and

(D)

any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual.

(5)

Computation of deduction for dividends received

(6)

Modifications related to real estate investment trusts

In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer—

(A)

the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B));

(B)

where such taxable year is a “prior taxable year” referred to in paragraph (2) of subsection (b), the term “taxable income” in such paragraph shall mean “real estate investment trust taxable income” (as defined in section 857(b)(2)); and

(C)

subsection (a)(2)(B)(ii)(I) shall be applied by substituting “real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))” for “taxable income”.

[(7)

Repealed. Pub. L. 115–97, title I, § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126]

(8)

Qualified business income deduction

(9)

Deduction for foreign-derived intangible income

(e)

Law applicable to computations

(f)

Special rule for insurance companies

In the case of an insurance company (as defined in section 816(a)) other than a life insurance company—

(1)

the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and

(2)

subparagraph (C) of subsection (b)(2) shall not apply.

(g)

Cross references

(1)

For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.

(2)

For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.

(Aug. 16, 1954, ch. 736, 68A Stat. 63; Pub. L. 85–866, title I, §§ 14(a), (b), 64(b), title II, § 203(a), (b), Sept. 2, 1958, 72 Stat. 1611, 1656, 1678; Pub. L. 87–710, § 1, Sept. 27, 1962, 76 Stat. 648; Pub. L. 87–792, § 7(f), Oct. 10, 1962, 76 Stat. 829; Pub. L. 87–794, title III, § 317(b), Oct. 11, 1962, 76 Stat. 889; Pub. L. 88–272, title II, §§ 210(a), (b), 234(b)(5), Feb. 26, 1964, 78 Stat. 47, 48, 115; Pub. L. 90–225, § 3(a), Dec. 27, 1967, 81 Stat. 732; Pub. L. 91–172, title IV, § 431(b), Dec. 30, 1969, 83 Stat. 619; Pub. L. 91–677, § 2(a)–(c), Jan. 12, 1971, 84 Stat. 2061; Pub. L. 94–455, title VIII, § 806(a)–(c), title X, § 1052(c)(3), title XVI, § 1606(b), (c), title XIX, §§ 1901(a)(29), 1906(b)(13)(A), title XXI, § 2126, Oct. 4, 1976, 90 Stat. 1598, 1648, 1755, 1756, 1769, 1834, 1920; Pub. L. 95–30, title I, § 102(b)(2), May 23, 1977, 91 Stat. 137; Pub. L. 95–600, title III, § 371(a), (b), title VI, § 601(b)(1), title VII, §§ 701(d)(1), 703(p)(1), Nov. 6, 1978, 92 Stat. 2859, 2896, 2900, 2943; Pub. L. 96–222, title I, §§ 103(a)(15), 106(a)(1), (6), (7), Apr. 1, 1980, 94 Stat. 214, 221; Pub. L. 96–595, § 1(a), Dec. 24, 1980, 94 Stat. 3464; Pub. L. 97–34, title II, § 207(a), Aug. 13, 1981, 95 Stat. 225;

cite as: 26 USC 172