Yes, business losses can be carried forward. Under current federal tax law, a net operating loss (NOL) from a tax year beginning after December 31, 2017 carries forward indefinitely, and in any future year the carried-forward amount can wipe out up to 80% of your taxable income. The remaining 20% still gets taxed. Anything you don’t use rolls to the next year, and the next, until the loss is gone.1Office of the Law Revision Counsel. 26 U.S.C. 172 – Net Operating Loss Deduction
How Long the Loss Lasts
There is no expiration date on a post-2017 NOL. Before the 2017 tax overhaul, businesses had 20 years to use a loss and anything left after that was gone. The indefinite window is a real improvement for startups and capital-intensive operations that may not see profit for years.
The trade-off is that most businesses can no longer carry a loss backward against prior-year income to claim a refund. That general carryback was eliminated. A brief CARES Act window reopened it for losses arising in 2018, 2019, and 2020, but that window has closed. Any NOL generated in 2021 or later moves forward only.2Internal Revenue Service. 4.11.11 Net Operating Loss Cases Farming is the main exception, covered below.
The 80% Cap Explained
The carryforward can’t erase your whole tax bill. For post-2017 NOLs, the deduction is capped at 80% of taxable income for the year, figured before the NOL deduction itself.1Office of the Law Revision Counsel. 26 U.S.C. 172 – Net Operating Loss Deduction
Say your business earns $200,000 in taxable income this year and you’re sitting on $300,000 in carried-forward losses. You can deduct 80% of $200,000, or $160,000. You pay tax on the remaining $40,000. The unused $140,000 rolls to next year.
The statute calculates that 80% figure after removing any Section 199A qualified business income deduction and Section 250 foreign-derived intangible income deduction from the equation, so those deductions don’t shrink the base your NOL is measured against.1Office of the Law Revision Counsel. 26 U.S.C. 172 – Net Operating Loss Deduction
If you still have any pre-2018 NOLs on the books, those older losses are not subject to the 80% cap. They can offset 100% of taxable income, and they’re applied first. The 80% limit only bites on income remaining after those older losses are used.
Whether the Loss Sits at the Business or Flows to You
Business structure decides where the carryforward lives. A C-corporation is its own taxpayer, so the NOL stays at the corporate level and offsets future corporate income. Shareholders never see it on their personal returns.
For pass-through entities — sole proprietorships, partnerships, S-corporations, and most LLCs — the loss flows to the owners’ individual returns, where it can offset wages, investment income, and other personal income. Each owner claims a proportional share.3Internal Revenue Service. Tax Cuts and Jobs Act – A Comparison for Businesses
Pass-through owners face one extra hurdle that C-corp shareholders don’t.
The Excess Business Loss Gate for Individual Owners
Before an owner’s business loss even becomes an NOL carryforward, it has to pass through Section 461(l). That rule caps how much net business loss you can deduct against non-business income (wages, investment returns) in a single year. For 2025, the cap is $313,000 for single filers and $626,000 for joint filers, and it adjusts annually for inflation.4Internal Revenue Service. Revenue Procedure 2024-40
If your total business deductions exceed your total business income by more than the threshold, the excess is disallowed for the current year. It isn’t lost, though: the disallowed portion becomes an NOL carryforward to the next year, subject to the same 80% limit and indefinite carryforward as any other post-2017 NOL. You report the calculation on Form 461. The at-risk rules and passive activity loss limits apply before you get there, so by the time you fill out Form 461, other loss disallowances have already been sorted.5Internal Revenue Service. Instructions for Form 461 (2025)
Farming Losses Can Still Go Backward
Farmers get a carve-out. The portion of an NOL attributable to a farming business can be carried back two years, which can generate a refund of taxes already paid. A “farming loss” is the smaller of the NOL you’d compute using only farming income and deductions, or the total NOL for the year. If your farm loss sits inside a larger NOL that includes non-farming activity, only the farming piece qualifies for the carryback.6Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction
You can elect to skip the carryback and carry the farming loss forward instead. The election must be made by the due date of your return (including extensions) for the loss year, and once made it’s irrevocable. When you do carry the farming loss back, the 80% limit still applies in the carryback year for post-2017 losses.6Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction
Ownership Changes Can Cripple a Corporate Carryforward
If a corporation with NOLs goes through a merger, acquisition, or major investor shift, Section 382 kicks in. It caps how much pre-change NOL the corporation can use each year after an ownership change, and the cap can be tight enough to make a large loss carryforward nearly useless.
An ownership change is triggered when one or more shareholders who each own at least 5% of the stock increase their combined ownership by more than 50 percentage points over a rolling three-year testing period. That can happen through a single acquisition, a string of smaller transactions, or a new equity issuance that dilutes existing holders.7Office of the Law Revision Counsel. 26 U.S. Code 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change
Once triggered, the annual limit equals the value of the loss corporation immediately before the change, multiplied by the IRS’s long-term tax-exempt rate (3.51% as of January 2026). A corporation valued at $10 million before the change could use roughly $351,000 of its pre-change NOLs per year, even if it has tens of millions in losses on the books. Unused portions of the annual limit roll forward, but absorbing a large NOL under this cap can take many years.8eCFR. 26 CFR 1.382-5 – Section 382 Limitation
Capital Losses Are Not NOLs
Losses from selling assets — equipment, investments, property — follow different rules and shouldn’t be lumped in with operating losses. A corporation can carry a net capital loss back three years and forward only five, and it can only offset capital gains, not ordinary business income.9Office of the Law Revision Counsel. 26 U.S.C. 1212 – Capital Loss Carrybacks and Carryovers
For individuals, including pass-through business owners, capital losses offset capital gains dollar-for-dollar plus up to $3,000 of ordinary income per year. Unused capital losses carry forward indefinitely, but the $3,000 annual limit against ordinary income keeps applying. Misclassifying a capital loss as an operating loss, or the reverse, throws off the whole carryforward calculation.
How to Report the Carryforward
The IRS introduced Form 172 in late 2024 for individuals, estates, and trusts to compute the NOL amount available to carry forward (or back, if the farming exception applies). You attach a Form 172 for each NOL year to the return where you claim the deduction.10Internal Revenue Service. Instructions for Form 172 (12/2024)
When you carry an NOL forward, the deduction shows up as a negative number on Schedule 1, line 8a of Form 1040 and flows to your main return, reducing adjusted gross income.10Internal Revenue Service. Instructions for Form 172 (12/2024) C-corporations report the NOL deduction on Form 1120.11Internal Revenue Service. Instructions for Form 1120 (2025)
Form 1045 and Form 1139 exist to request quick refunds when carrying a loss back to a prior year. If you’re only carrying losses forward, which is the situation for most businesses after 2020, you won’t use either.12Internal Revenue Service. 2025 Instructions for Form 1045 – Application for Tentative Refund13Internal Revenue Service. About Form 1139, Corporation Application for Tentative Refund
Keep the Records the Whole Time
The normal three-year statute of limitations doesn’t protect you when a carryforward is involved. Because you might use a loss over five, ten, or twenty years, keep the underlying documentation — receipts, invoices, payroll records, financial statements — for as long as the loss remains on the books, plus three years after the return where you claim the final piece.
If the IRS audits a year in which you claimed an NOL deduction, you have to prove the original loss was legitimate, even if the loss year itself is past the normal audit window. Old tax returns alone won’t cut it; the IRS wants the underlying records. A year-by-year ledger showing the starting balance, amount used each year, and remaining balance keeps the math straight over a long carryforward.
State Rules Often Differ
Federal rules are only the starting point. Roughly 19 states and the District of Columbia follow the federal approach of indefinite carryforward with the 80% cap. About a dozen states cap the carryforward period at 20 years, and others use windows of 5 to 15 years. A few states limit the dollar amount or percentage of a loss that can be carried forward regardless of the time period.
If your business operates in multiple states, each state’s return may show a different remaining NOL balance and a different annual cap. State conformity with federal tax law can lag by several years, so your state may still apply rules the federal government has already changed. Check the current provisions where you file rather than assuming they mirror the federal framework.