Interactive Guide to Net Operating Losses (NOLs) Form 172

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Introduction The NOL Journey Deep Dive Carryover Calculator

Understanding Net Operating Losses (NOLs)

A Net Operating Loss, or NOL, happens when your tax-deductible expenses for a year are greater than your income. This guide simplifies the IRS rules from Form 172 to help you understand if you have an NOL and how you can use it to lower your taxes in other years. This tool is for educational purposes and is not official tax advice.

The NOL Journey

Follow the steps to see how a Net Operating Loss is calculated and used.

Step 1

Calculate Your NOL

Determine if your deductions exceed your income based on specific IRS rules.

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Step 2

Identify Loss Type

Is it a general business loss or a special farming loss?

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Step 3a (Farming)

Carry Back 2 Years

Get a refund from past taxes, or waive this and carry forward.

Step 3b (General)

Carry Forward

Apply the loss to reduce future taxable income.

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Step 4

Deduct Your NOL

Claim the deduction on the appropriate year's tax return.

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Step 5

Calculate Carryover

If any NOL is unused, carry the remainder to the next year.

Deep Dive into NOL Concepts

Click the tabs to explore the key rules and limitations for using an NOL.

Using an NOL to Lower Future Taxes

For most NOLs arising after 2020, you can only carry them forward. This means you use the loss to reduce your taxable income in future years. The loss can be carried forward indefinitely until it is fully used.

The 80% Limitation Rule:

A key rule is that for NOLs from 2018 or later, the deduction you can take in a future year is limited. It cannot exceed 80% of your taxable income for that year (calculated before the NOL deduction itself). This prevents you from completely eliminating your tax liability in a high-income year with a prior-year loss.

The Farming Loss Exception

While most NOLs cannot be carried back, there is a significant exception for losses from a farming business. You can choose to carry a farming loss back two years. This is a powerful benefit because it can result in an immediate tax refund from taxes you've already paid in those prior years.

• Get a Quick Refund: File Form 1045 for a tentative refund, which is generally the faster option.
• Amend Your Return: Alternatively, file Form 1040-X to amend your tax return for the carryback year.
• Waiving the Carryback: You can choose to waive the carryback and only carry the farming loss forward. This choice is irrevocable and must be made by the tax return due date for the loss year.

Important Rules & Adjustments

Calculating and using an NOL involves several specific adjustments. You can't simply use your bottom-line loss from your tax return. Here are some of the most common limitations:

• Capital Losses: You cannot deduct capital losses in excess of your capital gains when calculating your NOL.
• Non-business Deductions: Your non-business deductions (like the standard deduction or most itemized deductions) can only be used to the extent of your non-business income.
• QBI Deduction: The Qualified Business Income (QBI) deduction under Section 199A is not allowed when figuring an NOL.
• Excess Business Loss: If your business loss is very large, it may be limited by the "excess business loss" rules. The disallowed amount is not lost; it is treated as an NOL carryforward to the next year.
• Change in Marital Status: If your marital status changes, special rules apply. An NOL can generally only be used to offset the income of the spouse who incurred the loss.

NOL Carryover Calculator

This tool estimates how an NOL carryforward is applied to a future year's income. It demonstrates the 80% limitation. Enter your numbers to see how it works. This is for educational purposes only.

Taxable Income in Future Year (Before NOL)

$

NOL Amount to Carry Forward

$

80% Taxable Income Limit:

$80,000

NOL Amount Deducted This Year:

$80,000

Adjusted Taxable Income (After NOL):

$20,000

Remaining NOL to Carry Over:

$120,000

© 2025 NOL Assistant. All content is for informational purposes only.

This tool does not provide tax, legal or accounting advice. Consult with a professional for advice concerning your specific situation.