The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 made significant changes to the deductibility of net operating losses (NOL) and non-corporate business losses in hopes of providing economic relief to individuals and businesses impacted by the coronavirus pandemic.
Under the 2017 Tax Cuts and Jobs Act (TCJA), net operating losses arising in tax years beginning after December 31, 2017, were no longer eligible to be carried back but could be carried forward indefinitely. While net operating losses may still be carried forward, the CARES Act allows a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021.
The CARES Act also temporarily removes the 80% of taxable income limitation put in place by the TCJA. This means that net operating losses can be carried back to reduce 100% of taxable income in a prior year or could be carried forward to reduce 100% of taxable income in a future year.
The CARES Act also retroactively changed the effective date of the excess business loss limitation put in place by the TCJA. Under the TCJA non-corporate business losses incurred after 12/31/17 were limited to $250,000 ($500,000 for married taxpayers filing jointly). The CARES Act retroactively changed the effective date of the limitation to years beginning after 12/31/2020.
Please reach out to your personal Sciarabba Walker contact or email us at firstname.lastname@example.org regarding any questions you may have including the potential benefit of amending previously filed tax returns to take advantage of net operating losses and non-corporate business previously incurred.
By David Johnson, CPA