IRS NOL: Carryforward Rules, 80% Cap, and Section 382 Limits

Under the IRS net operating loss carryforward rules, a business loss arising after 2020 is carried forward indefinitely and can offset up to 80% of taxable income in each future year until the loss is used up.¹ Carrybacks are no longer available for most losses, so the carryforward is the only path. Non-corporate filers have an extra step before the carryforward rules apply, and corporations that change hands face a separate annual cap.

How Long the Carryforward Lasts and the 80% Cap

For NOLs arising in tax years beginning after December 31, 2017, the loss carries forward indefinitely until fully absorbed. There is no 20-year expiration.¹ For losses arising after 2020, the general rule also eliminates carrybacks. You carry the loss forward only.²

When you apply a post-2017 NOL carryforward in a later year, the deduction cannot exceed 80% of taxable income for that year. Taxable income for this purpose is figured without the NOL deduction itself, without the Section 199A qualified business income deduction, and without the Section 250 deduction for foreign-derived intangible income.¹ The remaining 20% of income stays taxable no matter how large your accumulated carryforward is. Any NOL you cannot use because of the cap simply moves to the next year.

How Older NOLs and Farming Losses Are Treated Differently

Two carveouts matter if they fit your situation. Pre-2018 NOLs still being carried forward are not subject to the 80% cap and can offset income dollar for dollar, but they retain the old 20-year expiration. When a taxpayer has both pre-2018 and post-2017 NOLs available in the same year, the pre-2018 losses apply first without a percentage limit, and the 80% cap then applies only to the post-2017 losses against whatever income remains.³

Farming losses are the main exception to the no-carryback rule. The portion of an NOL attributable to a farming business can be carried back two years. The farming loss is the smaller of the NOL you would have if you only counted farming income and deductions, or your total NOL for the year. A farmer can elect to waive the carryback and carry the loss forward instead, but the election is irrevocable once made.¹

Calculating the NOL Before You Carry It Forward

A negative taxable income figure is not automatically your NOL. Section 172(d) requires adjustments that strip out items that aren’t genuine business losses, so only true trade-or-business losses travel to other years. Individuals, estates, and trusts work through the calculation on Form 172.²

For non-corporate taxpayers, the required adjustments are:

Non-business deductions, such as the standard deduction or itemized deductions unrelated to a trade or business, can only offset non-business income. Any excess of non-business deductions over non-business income is added back.
Capital losses can only offset capital gains. If your capital losses exceed capital gains, the excess cannot increase your NOL.
NOL carryovers or carrybacks from other tax years cannot be included when figuring the current year’s NOL.
The Section 199A qualified business income deduction cannot create or increase an NOL.

All four adjustments come from Section 172(d), and the first two are specific to non-corporate taxpayers.¹ Corporations face a different set of modifications, mostly around the dividends-received deduction. The practical effect for individuals is that personal losses, investment losses, casualty losses on personal property, and large itemized deductions generally cannot inflate the NOL beyond what the business itself lost.

NOLs are most commonly relevant for C corporations, estates and trusts, and individuals with significant self-employment or business income. Partnerships and S corporations do not generate NOLs at the entity level; their losses pass through to partners or shareholders, who then factor those losses into their own NOL calculations.⁴

The Excess Business Loss Rule for Individuals

If you are not a corporation, you have to run your business losses through Section 461(l) before the NOL rules apply. The provision caps how much business loss you can deduct against non-business income in a single year. For 2025, the threshold is $313,000 for single filers and $626,000 for joint filers, adjusted annually for inflation.⁵

Business losses above the threshold are disallowed in the current year and automatically become an NOL carryforward to the following year.⁶ You can end up with an NOL carryforward even in a year of overall positive taxable income if your business losses exceed the cap. The calculation happens on Form 461, and the disallowed amount flows into your NOL carryforward.⁷

Under current law, the excess business loss limitation applies through tax years beginning before January 1, 2027, so 2026 is the last year it applies unless Congress extends it.⁶

Section 382 Cap After Corporate Ownership Changes

Corporations carrying forward large NOLs face a separate restriction when ownership changes. Section 382 caps how much of an old NOL a corporation can use each year after an ownership change, to prevent companies from being acquired primarily for their tax losses.

An ownership change triggers Section 382 when one or more 5-percent shareholders increase their combined ownership by more than 50 percentage points over a three-year testing period.⁸ It can happen through a single acquisition or a series of smaller transactions.

Once triggered, the annual limit on NOL usage equals the value of the loss corporation’s equity immediately before the change, multiplied by the IRS-published long-term tax-exempt rate.⁸ The IRS publishes this rate monthly. As of early 2026, the adjusted federal long-term rate is approximately 3.58%.⁹ For a corporation valued at $10 million before the change, the annual NOL usage limit would be roughly $358,000, regardless of the size of the accumulated NOL carryforward. Any NOL that cannot be used within the carryforward period because of the annual cap is permanently lost.

Forms to Use for a Carryforward

Individuals, estates, and trusts compute the NOL on Form 172. Part I walks through the Section 172(d) adjustments to arrive at the actual NOL. Part II tracks how much of the NOL is absorbed each year and how much remains to carry forward.²

If you’re applying a carryforward and need to correct a previously filed return, use an amended return. Individuals file Form 1040-X.¹⁰ Corporations file Form 1120-X. You generally must file the amended return within three years after the due date (including extensions) of the return for the NOL year.²

State Rules May Differ

Federal NOL rules do not automatically apply to your state return. Some states conform to the federal 80% limitation and indefinite carryforward period. Others impose their own caps, shorter carryforward windows, or different calculation methods, and a handful of states do not allow NOL deductions at all. A loss that carries forward indefinitely for federal purposes may expire on your state return, so check your state’s conformity rules separately.

1
Office of the Law Revision Counsel. 26 USC 172 – Net Operating Loss Deduction
2
Internal Revenue Service. Instructions for Form 172
3
Office of the Law Revision Counsel. 26 US Code 172 – Net Operating Loss Deduction
4
Electronic Code of Federal Regulations. 26 CFR 1.172-1 – Net Operating Loss Deduction
5
Internal Revenue Service. 2025 Instructions for Form 461
6
Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction
7
Internal Revenue Service. Excess Business Losses
8
Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change
9
Internal Revenue Service. Rev. Rul. 2026-6
10
Internal Revenue Service. About Form 1040-X, Amended US Individual Income Tax Return