Yes, an LLC can carry forward losses, and for losses generated in tax years after 2017 there is no expiration date under federal law. The catch is that a carryforward can offset only up to 80 percent of the next year’s taxable income, and before an owner uses any loss at all, the deduction has to survive several limits tied to how much they’ve invested, how involved they are, and how big their total business losses run. How all of this plays out turns almost entirely on how the LLC is taxed.1
Who Actually Gets the Loss Depends on Tax Classification
An LLC has no default federal tax category of its own. It elects one, and that election decides where a loss lands.
A single-member LLC is a disregarded entity, so income and losses flow straight onto the owner’s personal return. A multi-member LLC defaults to partnership treatment, with each member receiving a Schedule K-1 showing their share of profit or loss. Under either pass-through setup, the LLC itself owes no federal income tax; members report their allocated share on their own returns, where it can offset wages, investment income, or other earnings, subject to the limits below. An S-corporation election works the same way, with losses passing to shareholders by ownership percentage.
A C-corporation election changes the picture completely. The corporation is its own taxpayer, and losses stay at the entity level. The company can carry those losses forward against its future profits, but the members cannot use them on their personal returns.
The Federal Carryforward Rule
The Tax Cuts and Jobs Act rewrote net operating loss treatment for tax years beginning after December 31, 2017. Under the current version of Section 172, losses from those years carry forward indefinitely until fully absorbed. The old 20-year clock is gone for post-2017 losses.
The tradeoff is a usage cap. In any year, an NOL carryforward can offset no more than 80 percent of that year’s taxable income, calculated before the NOL deduction, the qualified business income deduction, and any Section 250 deduction. A profitable year always leaves some tax on the table, no matter how large the accumulated losses.
Losses From Before 2018
Losses generated in tax years beginning before January 1, 2018 follow the older regime. They could be carried back two years and carried forward up to 20 years, and they were not subject to the 80 percent cap, so they could zero out a year of taxable income. Any pre-2018 losses still unused remain on that 20-year clock and can expire.
The Closed CARES Window
The CARES Act temporarily allowed losses from 2018, 2019, and 2020 to be carried back five years. That window has closed. For losses arising in 2021 and later, no carryback is available under the general rule.
Three Filters Every Pass-Through Loss Has to Clear
Recording a loss on the LLC’s books doesn’t mean each member can deduct their share. Pass-through owners face three filters in a set order: basis, at-risk, and passive activity. A loss blocked at any layer is suspended and carried forward within that layer until the owner’s situation changes.
Basis
Your basis in the LLC is your running investment balance. It starts with the cash and property you contributed, goes up with additional contributions and your share of income, and comes down with distributions and your share of losses. You cannot deduct more than your basis. Any excess is suspended until you restore basis, usually through new contributions or allocated income in a later year.
At-Risk
Losses that clear basis are measured next against your at-risk amount under Section 465. That amount generally includes money you invested and debts you’re personally on the hook for. It does not include loans where you have no personal liability and no property pledged as collateral. Anything over your at-risk amount is suspended.
Passive Activity
The final filter, under Section 469, targets owners who don’t materially participate in the business. If you’re a silent investor or otherwise uninvolved in day-to-day operations, your share of the loss is passive. Passive losses can only offset passive income; they cannot shelter your salary, active business income, or most investment returns. Suspended passive losses carry forward from year to year and fully unlock when you dispose of your entire interest in the activity in a taxable transaction.
Order matters. Basis comes first, at-risk second, passive activity last. A loss blocked at the at-risk stage never reaches the passive analysis.
The Excess Business Loss Cap
Even after clearing those three filters, pass-through owners face one more ceiling. Section 461(l) limits the total business losses a noncorporate taxpayer can deduct in a single year. Anything above the threshold is an excess business loss, and it isn’t lost. It converts into an NOL carryforward for the next year, subject to the same Section 172 rules and the 80 percent cap.
For 2025, the threshold is $313,000 for single filers and $626,000 for joint filers. Starting in 2026, the calculation resets under the statute’s base amount of $250,000 (single) and $500,000 (joint), adjusted for inflation, bringing the threshold to roughly $256,000 and $512,000. The One Big Beautiful Bill Act made this provision permanent, so it no longer has a sunset. You report the calculation on Form 461, which must be filed when total business losses exceed the threshold.
Two Things NOL Carryforwards Won’t Do for You
They Shrink Your QBI Deduction in Recovery Years
Under Section 199A, if your qualified business deductions exceeded qualified business income in a prior year, that negative amount carries forward and reduces QBI in the following year before the deduction is calculated. A big loss year doesn’t just create a future NOL deduction; it also shrinks the QBI deduction you’d otherwise claim in the recovery year.
They Don’t Reduce Self-Employment Tax
This one catches a lot of LLC owners. An NOL carryforward reduces income tax, but it has no effect on self-employment tax. The IRS calculates SE tax on your current-year net earnings from self-employment, and prior-year NOL carryovers are explicitly excluded. In a profitable year you owe the full 15.3 percent SE tax on those earnings even while a large carryforward is knocking down your income tax bill.
How to Report the Carryforward
For a partnership-taxed LLC, the process starts with the Schedule K-1 you receive from the LLC’s Form 1065. Your allocated share of income or loss on that K-1, combined with your running basis and at-risk calculations, tells you how much loss you can actually deduct this year.
When you carry a loss forward, you report the NOL deduction as a negative number on Schedule 1 (Form 1040), Line 8a. Attach a completed Form 172 for each NOL year that feeds into the deduction. If your aggregate business losses trigger the excess business loss limit, file Form 461 too. The IRS cross-references your personal-return figures against what the LLC filed, and mismatches generate notices.
How Long to Keep the Records
The standard IRS record-retention period is three years after filing, but NOL carryforwards stretch that out. The Form 172 instructions say to keep records for any tax year that generates an NOL for three years after you’ve used the carryforward, or three years after it expires. Because post-2017 losses can now carry forward indefinitely, a 2022 loss you don’t fully absorb until 2032 means holding onto those 2022 records until at least 2035. Many accountants recommend keeping NOL records for as long as any unused balance remains, plus the standard three-year cushion.
State Rules Vary
Federal treatment isn’t the whole story. States that impose their own income taxes set their own NOL carryforward periods. Many allow 20 years; some run shorter, in the range of five to fifteen. A handful of states use gross-receipts-based taxes instead of income taxes and offer no NOL deduction at all. Several states also don’t follow the federal 80 percent limit, either substituting their own cap or capping the total dollar amount of carryforwards used in a year. If your LLC operates in multiple states or its members live in different states, the carryforward picture can look different in each jurisdiction.