Back to Articles
Business Tax5 min readMar 17, 2026
Net Operating Losses: How to Use Them Strategically
When your business expenses exceed income, a net operating loss can reduce taxes in other years. Here's how NOLs work.
Net Operating Losses (NOLs)
What Is a Net Operating Loss?
A net operating loss occurs when allowable deductions exceed taxable income in a given tax year.
Current NOL Rules (Post-TCJA)
- NOLs can be carried forward indefinitely
- Can offset up to 80% of taxable income in any future year
- No carryback allowed (except farming NOLs, which can be carried back 2 years)
Pre-TCJA NOLs
NOLs generated before January 1, 2018:
- Can be carried back 2 years and forward 20 years
- Can offset 100% of taxable income
What Creates an NOL?
- Business losses exceeding income
- Casualty and theft losses
- Moving expenses (pre-TCJA)
What Doesn't Create an NOL
- Capital loss deductions (limited to $3,000)
- Deductions for personal exemptions
- Non-business deductions over non-business income
Strategic Use of NOLs
- Track carryforward balances carefully
- Consider timing of income and deductions to maximize benefit
- An NOL may affect your state taxes differently
Did your business have a bad year? An NOL can turn this year's loss into future tax savings.