Net Operating Loss Rules

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I’ve gotten a few questions about strategies for losses. There haven’t been any rule changes (yet), but they could be coming. For now, here’s how it works.

You can take a net operating loss from your business as a carryback for 2 years. If you have a NOL in 2008, it would first go back against 2007 to take it to zero. If there is still more loss, you can then take it back to 2006. If there is still more loss, then it is carried forward. OR you can make an election to forego the carryback, and just have it all roll forward.

This is just at the federal level. About 1/3 of all states do not allow a carryback for losses. Look for a change here. There’s a movement at the state level to no longer allow carrybacks because it gives an immediate refund and the states are trying to raise taxes, not give away past tax money.

Capital losses can only roll forward. You cannot carry them back.

Pres Obama is calling for a change in how we can take net operating losses. It won’t impact capital losses, just the losses from your business. If this passes, you’ll be able to take losses all the way back to 2003. I’m going to guess that it would be done the same way that we do losses now. So, for example, if you have a loss in 2009, it’ll apply first to 2008, then to 2007, then to 2006, then to 2005.

Make sure that you’re signed up for email tax alerts and check back here. We’re following a lot of changing tax stories right now.

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