The long-term tax-exempt rate is the monthly figure the IRS publishes to cap how much of a corporation’s pre-change net operating losses can offset income each year after an ownership change under Section 382. For June 2026, the rate is 3.68%.1Internal Revenue Service. Rev. Rul. 2026-11 You multiply it by the fair market value of the loss corporation immediately before the ownership change, and the result is the maximum amount of old losses the company can use to shelter income in any single post-change year.
Where To Find the Current Rate
The IRS publishes the rate every month inside its revenue ruling on applicable federal rates.2Internal Revenue Service. Applicable Federal Rates Rulings are numbered by year and sequence. Rev. Rul. 2026-11 carries the June 2026 figures.1Internal Revenue Service. Rev. Rul. 2026-11
Inside each ruling, look for Table 3, labeled “Rates Under Section 382.” That table shows both the adjusted federal long-term rate for the month and the long-term tax-exempt rate itself. Do not use Table 1 or Table 2; those cover short-term and mid-term rates for loan pricing and unrelated purposes.
Match the rate to the exact month of the ownership change. Not the announcement month, not the fiscal year-end, not the filing month. For January 2026, the rate was 3.51%.3Internal Revenue Service. Rev. Rul. 2026-2 By June 2026 it was 3.68%.1Internal Revenue Service. Rev. Rul. 2026-11 The IRS keeps an index of past rulings for ownership changes under audit or review.
One structural note worth knowing: the published rate for any given month is the highest adjusted federal long-term rate from that month and the two months before it.4Internal Revenue Service. Notice 2013-4 – Adjusted Applicable Federal Rates and Adjusted Federal Long-Term Rates The three-month lookback is already baked into the number in Table 3, so you do not need to compute it yourself.
How To Calculate the Annual Loss Limitation
The formula is one line: fair market value of the loss corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate for the month of the change.5Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change The product is the ceiling on how much of the pre-change losses you can deduct in any single post-change year.
Take a company valued at $50 million with a June 2026 ownership change. The annual limit is $50,000,000 × 3.68% = $1,840,000. If the company earns $5 million the following year, only $1,840,000 of that income can be sheltered with pre-change losses. The other $3,160,000 is taxed in full.
Unused limit does not disappear. If the company earns only $1 million in a given post-change year, it uses $1 million of its $1,840,000 cap and carries the remaining $840,000 forward, raising next year’s ceiling to $2,680,000.5Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change
When the Rate Actually Matters
You only reach for the rate once a corporation has an “ownership change” under Section 382. That happens when one or more 5-percent shareholders increase their combined stake by more than 50 percentage points over a rolling three-year testing period.5Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change The comparison runs from each relevant shareholder’s lowest percentage during the window to their percentage right after the shift.
Smaller holders are not ignored. Everyone owning less than 5% is pooled into a “public group” and treated as a single 5-percent shareholder, and under certain stock issuances or redemptions those small holders can be split into separate tracking groups. A large public offering can trip the trigger even when no individual buyer crosses 5%. A series of smaller transactions can also quietly add up past 50 points without any one deal looking like a change of control.
Adjustments That Change the Value You Multiply
Because the entire limitation keys off fair market value, the Code polices how that number is built.
Capital Pumped In Before the Change
Capital contributed to the loss corporation during the two years before the ownership change is presumed to be part of a plan to inflate the Section 382 limitation and is stripped out of the value calculation.6Office of the Law Revision Counsel. 26 U.S. Code 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change Regulations can carve out exceptions for contributions made for legitimate business reasons unrelated to the loss limitation, but the burden sits with the taxpayer to show the contribution was not part of a plan to game the number.7Internal Revenue Service. Capital Contributions Under Section 382(l)(1)
Redemptions and Bootstrap Financing
Value is also reduced for redemptions or other transactions that drain assets from the corporation in connection with the ownership change. When the acquisition is funded with debt the target itself will repay, value is measured after that drain, which stops buyers from borrowing against the target’s own cash flow to pad the pre-change value on paper.
Built-In Gains and Losses During the First Five Years
The basic limitation can move in either direction during a five-year recognition period after the change, depending on whether the corporation’s assets are worth more or less than their tax basis on the change date.8Internal Revenue Service. Built-in Gains and Losses Under Section 382(h)
When assets exceed basis, the corporation has a net unrealized built-in gain. If that gain tops the lesser of $10 million or 15% of the assets’ fair market value, any gain actually recognized from selling those appreciated assets within the five-year window increases the Section 382 limit for the year of sale.8Internal Revenue Service. Built-in Gains and Losses Under Section 382(h)
The mirror rule cuts the other way. If assets are below basis by more than the same threshold, losses recognized on their sale within five years are treated as pre-change losses and fall under the cap.9Federal Register. Regulations Under Section 382(h) Related to Built-In Gain and Loss Below the threshold, the built-in loss is treated as zero and does not reduce the limitation.
The Business Continuity Trap
Clearing the ownership change and running the formula is not enough. The new loss corporation must continue operating the old corporation’s business for at least two years after the change date. Fail that test and the Section 382 limitation drops to zero for every post-change year, wiping out access to the pre-change losses entirely.6Office of the Law Revision Counsel. 26 U.S. Code 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-in Losses Following Ownership Change
The lone exception preserves any increase in the limitation attributable to built-in gains actually recognized during the period. For most corporations, though, a premature shutdown or drastic pivot inside the two-year window destroys the entire deduction stream. Acquirers planning to gut the target’s operations and keep only the losses will find those losses worthless if the business does not survive.
Mistakes That Cost Real Money
Two expensive outcomes come from mishandling the limitation: claiming too many pre-change losses and facing underpayment penalties on audit, or claiming too few and overpaying tax for years without noticing. Both are common.
The most frequent failure is not tracking ownership shifts in real time. Companies with active trading, multiple equity rounds, or steady buybacks can cross the 50-point threshold without any single transaction looking significant. By the time someone runs a Section 382 study, the change date may be months or years in the past, and every return filed since has used the wrong basis.
The second is using the wrong month’s rate. The rate ties to the month of the ownership change, period. Pulling it from Table 3 of the correct revenue ruling is a small mechanical step, but a fraction of a percentage point compounds across the entire carryforward life, and for a large corporation that gap can run into the millions.