26 U.S.C. § 172 — Net operating loss deduction

(a) Deduction allowed: You get a deduction each year equal to: (1) For tax years starting before January 1, 2021: add up all your net operating loss carryovers into this year, plus all your net operating loss carrybacks into this year. (2) For tax years starting after December 31, 2020: add together — (A) all net operating losses from years starting before January 1, 2018, carried into this year, plus (B) the smaller of — (i) net operating losses from years starting after December 31, 2017, carried into this year, or (ii) 80 percent of this amount: take your taxable income, figured without this deduction or the deductions under sections 199A and 250, then subtract the amount from (A) above. This total is called the "net operating loss deduction." (b) Net operating loss carrybacks and carryovers: (1)(A) General rule: A loss is a "carryback" as described in (B), (C)(i), and (D) below. Otherwise, it is a "carryover": losses from years starting before 2018 carry forward 20 years; losses from years starting after December 31, 2017 carry forward with no time limit, except as (C)(ii) says. (B) Farming losses: (i) The farming-loss part of your net operating loss carries back 2 years. (ii) "Farming loss" means the smaller of: the loss you would have if you only counted farming-business income and deductions, or your total net operating loss for the year. (iii) When applying paragraph (2)'s carryover-amount rules, treat the farming loss as a separate loss, used only after the rest of that year's loss. (iv) You may elect out of this 2-year carryback; the election must be made by your tax return's due date, with extensions, and once made cannot be undone. (C) Insurance companies: For insurance companies, not life insurance companies, the loss (i) carries back 2 years and (ii) carries forward 20 years. (D) Special rule for 2018, 2019, and 2020 losses: (i) A loss from a year starting after 2017 and before 2021 carries back 5 years, and the farming-loss and insurance-company rules in (B) and (C)(i) do not apply to it. (ii) Special REIT rules: a loss from a year when the taxpayer was a real estate investment trust cannot be carried back at all; a loss from a non-REIT year cannot be carried back into a REIT year. (iii) For life insurance companies, if a loss is carried back into a year before 2018, treat it like an old-style operations loss carryback. (iv) If a loss is carried back into a year where the company had to include income under section 965(a), a one-time repatriation tax, the company is treated as if it made the section 965(n) election for that year. (v) If the 5-year carryback period touches one or more section 965(a) years, the taxpayer may elect to skip those years from the carryback period, using the same election process as paragraph (3), and that election must be made by the due date of the return for the first tax year ending after this rule was enacted. (2) Amount of carrybacks and carryovers: Your whole net operating loss goes first to the earliest year it is allowed to reach. Whatever is left after using it up in that year goes to the next allowed year, and so on. The amount used in each year is limited to that year's taxable income, which cannot go below zero, figured with the modifications in subsection (d), except paragraphs (1), (4), and (5), and without counting the loss year's own loss or any later year's loss. For years starting after 2020, that taxable income figure is further reduced by 20 percent of the excess described in (a)(2)(B)(ii). (3) Election to waive carryback: You may choose to give up the entire carryback period for a loss. You must make this election by your return's due date, with extensions, following IRS rules, and once made it cannot be undone. (c) Net operating loss defined: A "net operating loss" is the amount by which your allowed deductions exceed your gross income, figured with the modifications in subsection (d). (d) Modifications: When figuring the loss, make these changes: (1) Do not count any net operating loss deduction. (2) For taxpayers other than corporations: capital losses can only be deducted up to the amount of capital gains, and you cannot use the special exclusion under section 1202. (3) Do not take the personal exemption deduction under section 151, or anything similar. (4) For taxpayers other than corporations: deductions unrelated to your trade or business are allowed only up to the amount of your income that is not from that trade or business. For this rule: gains or losses from selling business property, depreciable property or real property used in the business, count as business-related; the modifications in (1), (2)(B), and (3) still apply; casualty or theft loss deductions under section 165(c)(2) or (3) count as business-related; and certain retirement-plan deductions under section 404 for a self-employed person do not count as business-related. (5) The dividends-received deductions under sections 243 and 245 are figured without the limit in section 246(b). (6) For a year when the taxpayer is a real estate investment trust: figure the loss using the REIT adjustments in section 857(b)(2), other than the dividends-paid deduction; when applying the carryover rules in (b)(2), use "real estate investment trust taxable income" instead of regular taxable income; and adjust the 80-percent formula in (a)(2)(B)(ii)(I) the same way. (7) Repealed by Public Law 115–97, section 13305(b)(3), December 22, 2017. (8) No deduction is allowed under section 199A, the qualified business income deduction. (9) No deduction is allowed under section 250, the foreign-derived income deduction. (e) Law applicable to computations: When figuring a carryback or carryover into a given year, use the tax law that applied in whatever other year is being calculated. (f) Special rule for insurance companies: For insurance companies other than life insurance companies: (1) the deduction equals the total of all carryovers plus carrybacks into that year; and (2) the special limit in (b)(2)(C) does not apply. (g) Cross references: (1) For how net operating loss carryovers work in certain corporate mergers or acquisitions, see section 381. (2) For special limits on carryovers when a corporation changes ownership, see section 382.