The new stimulus bill that was signed on Friday, March 27, 2020, known as the CARES Act is a massive and far ranging $2+ TRILLION bill, so it is probably best for us to break it down by sections or likely impacted group. This Act may be cited as the “Coronavirus Aid, Relief, and Economic Security Act.” This post will cover relevant net operating loss provision changes.
In 2017, the TCJA changed the rules for net operating losses (NOLs). Briefly stated, it eliminated carrybacks relating to NOLs generated after 2017 and limited NOL carryforwards to 80% of taxable income. The CARES Act allows 100% of the NOL to be carried back to the prior 5 tax years for NOLs arising in tax years beginning before 2021. The Act also delays the 80% taxable income limitation. For years beginning before 2021, taxpayers can take a NOL deduction equal to 100% of taxable income. For tax years 2021 and after, taxpayers will be eligible for a 100% deduction of NOLs arising in tax years before 2018 and a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.
For non-corporate taxpayers, current law disallows the deduction of excess business losses beginning after December 31, 2017 and ending before January 1, 2026. An excess business loss is the excess of the taxpayer’s aggregate trade or business deductions for the tax year over the sum of the taxpayer’s aggregate trade or business gross income plus $250,000. The CARES act modified the loss limitation so they can deduct excess business losses arising in 2018, 2019, and 2020. Excess business losses do not include any deduction under Code Section 172 (Net Operating Losses) or Code Section 199a (Qualified Business Income Deduction) or any deductions related to performing services as an employee.
The CARES Act also amends NOL carryback rules related to fiscal year taxpayers with taxable years that began in 2017 and ended during 2018. The amended rules now state that an NOL arising during the 2018 fiscal year is available for carryback for a two-year period, which was the rule in effect before the TCJA amendment.
Please reach out to your JMF accountant or email PPP@JMF.com, if you need any assistance.
Other Related CARES Act Blog Posts: