What Is the Long-Term Tax-Exempt Rate for Ownership Changes?

The long-term tax-exempt rate for ownership changes is a monthly benchmark the IRS publishes to cap how much of a corporation’s pre-existing net operating losses can offset taxable income each year after new owners take over. For June 2026, the rate is 3.68%.¹ Multiplied by the value of the loss corporation immediately before the change, it produces the annual ceiling on pre-change NOL use under Section 382 of the Internal Revenue Code.

Where the Rate Comes From

Section 382(f) defines the long-term tax-exempt rate as the highest adjusted federal long-term rate in effect for any month in the three-month window ending with the month of the ownership change.² The adjusted federal long-term rate starts with the federal long-term rate under Section 1274(d) and is then modified to reflect the yield spread between taxable bonds and tax-exempt obligations like municipal bonds. In effect, it approximates what a high-quality tax-exempt bond would return over the long term.

The IRS publishes the figure every month in a Revenue Ruling, alongside the other applicable federal rates. The rate moves with broader interest rate conditions, so timing a transaction can meaningfully affect how much loss the corporation gets to use each year.

Picking the Right Month

You are not locked into the rate on the exact day the ownership change closes. Section 382(f)(1) lets the corporation use the highest adjusted federal long-term rate from the month of the change and the two preceding months.² A higher rate produces a larger annual limitation, which means more losses available each year, so the look-back gives the corporation a small buffer against short-term dips.

For a June 2026 closing, compare the adjusted federal long-term rates published for April, May, and June, and take the highest. That figure becomes your long-term tax-exempt rate for the Section 382 calculation. Picking the wrong month or using an unadjusted rate produces a miscalculated limitation that can draw scrutiny on audit.

What Triggers the Rate: Ownership Change

The rate only matters when a corporation experiences an “ownership change” under Section 382(g). An ownership change occurs when one or more 5-percent shareholders increase their combined stake by more than 50 percentage points compared to their lowest ownership level at any point during the testing period, which generally runs three years back from the date being tested.³ The testing period can be shorter if a prior ownership change already occurred or if all the corporation’s loss carryforwards originated after the three-year lookback opened.

Congress built these rules to stop loss trafficking, where a profitable company buys a shell with accumulated losses just to zero out its own tax bill. The 50-percentage-point threshold is the tripwire that subjects those losses to the annual cap.

The Section 382 Limitation Formula

Once an ownership change happens, the annual cap on pre-change loss use is straightforward: multiply the value of the old loss corporation by the long-term tax-exempt rate.³ The result is the most pre-change NOL the corporation can deduct in any single post-change year.

Under Section 382(e), the value of the old loss corporation is the fair market value of all its stock immediately before the ownership change.² If the company redeemed shares or contracted its capital structure in connection with the change, the value is reduced accordingly. For foreign corporations, only assets connected to a U.S. trade or business count.

An example. A loss corporation is worth $15 million immediately before the ownership change, and the applicable long-term tax-exempt rate is 3.68%. The annual Section 382 limitation is $15,000,000 × 0.0368 = $552,000. No matter how large the accumulated losses are, only $552,000 can be deducted per year going forward.

Carryforward of Unused Limitation

If taxable income in a given year is less than the limitation, the unused portion rolls forward and raises the following year’s cap.³ In the example above, if the corporation had only $300,000 of taxable income, it would deduct $300,000 of losses and carry the remaining $252,000 of limitation into the next year, yielding an $804,000 ceiling. This prevents the cap from permanently stranding losses in low-income years.

Interaction with the 80% NOL Rule

The Section 382 cap is not the only ceiling. Under Section 172, net operating losses arising after 2017 carry forward indefinitely but can only offset up to 80% of taxable income in a given year.⁴ A corporation subject to both rules hits whichever ceiling comes first. If the Section 382 limitation is $552,000 but 80% of taxable income is only $400,000, the deduction stops at $400,000. Unused Section 382 capacity still rolls forward, but the 80% rule independently caps the current year. Older losses that originated before 2018 escape the 80% rule but carry a 20-year expiration.

Continuity of Business Enterprise

Computing the limitation correctly is not enough. The new owners must continue the old loss corporation’s business enterprise for at least two years after the change date. If they do not, the annual limitation drops to zero, and the pre-change losses become entirely unusable.²

A buyer who dismantles the acquired company’s operations or pivots to an entirely different line of business loses access to those losses. The narrow exception is that recognized built-in gains and certain Section 338 election gains can still increase the limitation even if continuity fails.² The core NOL deductions still vanish.

Built-In Gains and Losses

The limitation also interacts with gains and losses economically embedded in the corporation’s assets on the change date but not yet recognized for tax purposes.

If the old loss corporation had a net unrealized built-in gain, meaning its assets were worth more than their tax basis on the change date, the annual limitation gets increased by the built-in gain the corporation actually recognizes during a five-year recognition period after the change.³ Appreciated real estate or intellectual property recognized within that window can meaningfully raise the annual cap above what the base formula suggests.

The reverse applies to net unrealized built-in losses. Any built-in loss recognized during the five-year window is treated as a pre-change loss and falls under the same annual cap.³ In either direction, cumulative adjustments cannot exceed the net unrealized built-in gain or loss that existed on the change date, so the asset valuations on that date set a ceiling for years of future adjustments.

Bankruptcy and Insolvency Exceptions

Companies in bankruptcy get different treatment. Under Section 382(l)(5), the standard limitation does not apply at all if two conditions are met: the corporation is under bankruptcy court jurisdiction immediately before the ownership change, and the old shareholders and creditors together end up owning at least 50% of the new corporation’s stock as a result of the reorganization.²

The tradeoff is meaningful. Pre-change losses must be reduced by the interest deducted on debt that was converted to stock during the three years before the ownership change. And if a second ownership change happens within two years, the Section 382 limitation for that second change drops to zero, which can wipe out any remaining losses.² The corporation can elect out of the exception if the standard limitation produces a better result.

When the full bankruptcy exception is unavailable, usually because creditors do not end up with enough stock, Section 382(l)(6) provides a partial benefit. Instead of using the stock’s pre-change fair market value, which for a near-insolvent company can approach zero, the corporation’s value for the formula is increased to reflect the cancellation or surrender of creditors’ claims.² This avoids the result where a company with substantial ongoing operations but worthless equity gets a Section 382 limitation near zero.

Reporting the Change

A loss corporation must attach a statement to its income tax return for each year in which an owner shift, equity structure shift, or similar triggering transaction occurs. The statement identifies the dates of the ownership shifts, the date of any ownership change, and the amount of tax attributes that made the corporation a loss corporation in the first place.⁵

Any relevant elections belong in the same statement, including a choice to disregard a deemed option exercise or to close the books for income allocation purposes.⁵ Missing these filings does not eliminate the limitation, but it creates documentation gaps that become expensive to reconstruct if the IRS questions the corporation’s loss usage years later.

1
Internal Revenue Service. Rev. Rul. 2026-11
2
Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change
3
Office of the Law Revision Counsel. 26 USC 382 – Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change
4
Office of the Law Revision Counsel. 26 USC 172 – Net Operating Loss Deduction
5
eCFR. 26 CFR 1.382-11 – Reporting Requirements