Under current rules, the net operating loss carryback election is available only to two groups: taxpayers with farming losses and property and casualty insurance companies, both of which keep a two-year carryback. Everyone else lost the carryback permanently when the Tax Cuts and Jobs Act took effect for tax years beginning after 2017, and post-2017 losses now carry forward indefinitely instead.1Internal Revenue Service. Instructions for Form 172 If you fall into one of the two exception categories, the rules that follow determine whether you take the carryback, waive it, and how you claim the resulting refund.
Who Can Still Elect a Carryback
The default rule under Internal Revenue Code Section 172 is that losses arising in tax years beginning after December 31, 2017, carry forward only.2Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction Two statutory exceptions survive:
- The portion of an NOL that qualifies as a farming loss carries back two years. Only the farming portion gets carryback treatment; the rest carries forward.1Internal Revenue Service. Instructions for Form 172
- Property and casualty insurance companies retain a two-year carryback and a 20-year carryforward.3Legal Information Institute. 26 U.S.C. 172(b)(1) – Years to Which Loss May Be Carried
If you don’t operate a farm or a non-life insurance company, no election is available for a loss arising in 2021 or later. The five-year CARES Act carryback that applied to losses in 2018, 2019, and 2020 is fully closed by 2026: the 12-month tentative refund deadline expired no later than December 31, 2021 for a 2020 loss, and the three-year amended-return window closed by late 2024 at the latest.
Making the Election to Waive the Carryback
Even if you qualify for a two-year carryback, you can choose to skip it and use the loss only as a carryforward. This is the election to relinquish the carryback period under IRC Section 172(b)(3).2Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction The waiver is worth considering if you expect significantly higher income in future years, because a loss applied against tomorrow’s higher-rate income may be worth more than a refund of yesterday’s tax.
To make the election, attach a statement to your original return for the year the NOL arose, stating that you are electing to waive the carryback period under Section 172(b), and identifying the tax year of the loss. Individuals attach the statement to Form 1040; C corporations attach it to Form 1120. The return must be filed by its due date, including extensions.1Internal Revenue Service. Instructions for Form 172
Once made, the election is irrevocable for that NOL.2Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction You cannot revisit the decision two years later on learning the carryback would have produced a better result. Model both outcomes before you file: compare the refund you’d receive by carrying the loss back against the projected tax savings of carrying it forward.
If You Miss the Election Deadline
Filing on time without the waiver statement is a common mistake, and Treasury Regulation Section 301.9100-2 provides an automatic six-month extension. File an amended return within six months of the original due date (not including extensions), attach the election statement, and write “FILED PURSUANT TO ยง 301.9100-2” at the top.1Internal Revenue Service. Instructions for Form 172
Past the six-month window, the only remaining route is discretionary relief under Regulation Section 301.9100-3, which requires a private letter ruling. You must show you acted reasonably and in good faith and that granting relief won’t prejudice the government. Reasonable reliance on a tax professional who failed to advise the election is a common ground. The process is expensive and its outcome uncertain, so treat it as a last resort.
Claiming the Carryback Refund
Choosing to take the carryback means choosing between two filing routes: a tentative refund application, which pays fast but stays open to later examination, or an amended return, which takes longer to process but produces a more settled result.
The Tentative Refund Application
Individuals, estates, and trusts file Form 1045; C corporations file Form 1139.4Internal Revenue Service. IRS Provides Guidance Under the CARES Act to Taxpayers With Net Operating Losses You cannot submit the application before filing the return for the NOL year, and it must reach the IRS within 12 months after the end of the tax year in which the loss arose.5Internal Revenue Service. Instructions for Form 1045 For a calendar-year farmer with a 2025 loss, Form 1045 must be received by December 31, 2026. Missing that date pushes you to the amended-return route.
The IRS must process Form 1139 within 90 days of the later of the date you file the complete application or the last day of the month containing the extended due date for the NOL-year return.6Internal Revenue Service. Instructions for Form 1139 Form 1045 follows a similar timeline. Because the allowance is tentative, the IRS retains the right to audit the carryback later and demand repayment if it finds errors.
On Form 1045, Schedule A calculates the NOL and Schedule B shows how the loss reduces taxable income in each carryback year. Attach copies of the relevant schedules from the NOL-year return and mail the completed form to the IRS service center designated for your state. Electronic filing is not available for these applications.
The Amended Return
The alternative is amending the carryback year’s return directly. Individuals use Form 1040-X; corporations use Form 1120-X. The statute of limitations for an NOL carryback refund claim is three years from the due date, including extensions, of the return for the NOL year.7Office of the Law Revision Counsel. 26 U.S.C. 6511 – Limitations on Credit or Refund For a calendar-year individual who doesn’t extend, that runs three years from April 15 of the NOL year’s filing deadline. Extensions push it out further.
The choice between the two methods comes down to cash flow versus finality. If you need the money soon, the tentative application wins. If you’d rather avoid the risk of a later clawback and can wait for standard processing, the amended return gives more time to file and a more settled result.
Interest on the Refund
The IRS pays interest on carryback refunds, but the clock starts later than you might expect. The overpayment created by an NOL carryback is treated as not made until the end of the tax year in which the loss arose, not when you originally paid tax in the carryback year.8eCFR. 26 CFR 301.6611-1 – Interest on Overpayments A 2025 farming loss carried back to 2023 begins earning interest from December 31, 2025.
As of early 2026, the IRS interest rate on non-corporate overpayments is 7% for the first quarter and 6% for the second quarter.9Internal Revenue Service. Quarterly Interest Rates Corporate overpayments earn a lower rate: 5% for the second quarter of 2026, dropping to 3.5% on the portion exceeding $10,000.10Internal Revenue Service. Internal Revenue Bulletin: 2026-08 Rates reset quarterly, so the actual interest depends on how long processing takes.
What Changes in the Carryback Year
A carryback isn’t simple subtraction. It lowers the carryback year’s adjusted gross income (or taxable income, for a corporation), and every calculation that uses those figures as a floor or a threshold has to be reworked.
AGI-Driven Deductions
Medical expenses are deductible only above 7.5% of AGI.11Internal Revenue Service. Topic No. 502, Medical and Dental Expenses When the carryback lowers AGI, the floor drops with it, potentially freeing up additional medical deductions.
Personal casualty and theft losses follow the same pattern, with a caveat: since 2018, personal casualty losses are deductible only if they result from a federally declared disaster.12Internal Revenue Service. Topic No. 515, Casualty, Disaster, and Theft Losses For qualifying disaster losses, the 10% AGI floor still applies, so a lower AGI from the carryback can increase the deductible amount.
Tax Credits
If the carryback reduces taxable income in the earlier year to zero or near zero, nonrefundable credits used that year may become partially or fully unusable. Credits like the general business credit have their own carryback and carryforward provisions, so a displaced credit may need to move to yet another year. Work through the credit ordering rules carefully; this is where most carryback calculations get messy.
Alternative Minimum Tax
If the carryback lands in a year where the AMT applied, compute the Alternative Tax Net Operating Loss Deduction separately from the regular NOL. The AMT calculation adjusts and adds back certain items, so the AMT version of the loss may differ. Corporate carrybacks to years before 2018 (when the corporate AMT still existed) require a distinct computation that can sometimes eliminate the AMT liability for that year. For individuals, the AMT still exists but the higher TCJA exemption amounts leave fewer taxpayers affected.
Self-Employment Tax
An NOL carryback does not reduce self-employment tax in the carryback year. Self-employment tax is calculated on net earnings from self-employment, and the NOL deduction doesn’t enter that formula. Current-year business losses can zero out SE tax in the year they occur, but a loss carried from a different year won’t.
Record Retention
NOLs create an unusually long retention obligation. Keep documentation supporting the loss for as long as it could affect a tax return, which can stretch well beyond the normal three-year period. Since post-2017 losses carry forward indefinitely, you may need records from the loss year decades later.13Internal Revenue Service. How Long Should I Keep Records?
At a minimum, retain the filed return for the NOL year, the computation showing how the NOL was calculated, all supporting schedules and forms (Form 172, Form 1045 or 1139 if filed, any amended returns), and the underlying records substantiating the business deductions that created the loss: receipts, invoices, bank statements, and depreciation schedules. For carryback claims, also retain the original return for the carryback year and the amended return or tentative refund application showing the recomputed tax. Keep everything for at least three years after you file the return on which the last portion of the NOL is used, or three years after the refund claim deadline expires, whichever is later.13Internal Revenue Service. How Long Should I Keep Records?