1-Aug-2019 6:20pm
2-Aug-2019 2:02am
NOL limitations for post-2017 losses. The rules for NOLs arising in tax years beginning after Dec. 31, 2017, are modified such that a corporation’s NOL carryover can only offset 80 percent of taxable income without regard to the new section 199A deduction. However, these NOLs can now be carried forward indefinitely instead of limited to 20 years. Carrybacks of these losses are no longer permitted.
NOL limitations for pre-2018 losses. Rules for existing NOLs remain the same. These losses can be carried back two years and forward 20 years. There is no taxable income limit to usage of pre-2018 losses.
Observation. This effective date means losses that arose in tax years that began before Jan. 1, 2018, will not be subject to the 80 percent of taxable income limit. As a result, taxpayers will have to distinguish between the two types of losses when computing the NOL deduction. Pre-2018 losses should be tracked separately from post-2017 losses. Also, fiscal year taxpayers with NOLs arising in tax years beginning before Dec. 31, 2017, and ending after Dec. 31, 2017, would not be subject to the 80 percent limitation but would also not be eligible for a carryback; instead, these could be carried forward indefinitely.
Example. ABC Corporation has a $2 million cumulative NOL from 2017 and prior tax years. ABC generated a $15 million NOL in 2018. 2019 taxable income is forecast to be $15 million. ABC can use its entire $2 million pre-2018 NOL and $12 million of the 2018 NOL (80 percent multiplied by pre-NOL income of $15 million). As a result, 2019 taxable income would be $1 million with a $3 million NOL carryforward.
Limitation on losses for noncorporate taxpayers. In a significant departure from prior law, the TCJA restricts use of business losses of noncorporate taxpayers. Previously, business losses recognized by individuals could reduce nonbusiness income (such as interest, dividends and capital gains) without limitation. Beginning in 2018, through the 2025 tax year, taxpayers can only deduct up to $500,000 (for married filing joint taxpayers) of these losses against nonbusiness income. Amounts above the threshold are considered “excess business losses” and carried forward and treated as part of the taxpayer’s NOL carryforward in subsequent taxable years. These NOL carryforwards are also subject to the new 80 percent NOL limitation.
2-Aug-2019 9:13am
2-Aug-2019 3:37pm
2-Aug-2019 3:41pm
I thought only business deductions can generate an NOL.
I can't see how any of the itemized deductions would generate an NOL.
2-Aug-2019 4:07pm
5-Aug-2019 11:58am
5-Aug-2019 3:37pm
6-Aug-2019 12:41pm
I suspect the software is incorrectly defaulting to treating all state income tax as business-related. Only the portion allocable to business income (which in this context includes W-2 wages and unemployment) is business-related.
6-Aug-2019 12:48pm
6-Aug-2019 2:56pm
23,000 Nonbusiness Income (e.g. retirement)
2,194 Business income
(155) Deduction for SE Tax
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25,039 AGI
(26,000) Itemized Deductions, including (2,200) state tax
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(961) AGI minus deductions
7-Aug-2019 8:43am
7-Aug-2019 9:52am
7-Aug-2019 9:59am
supdat wrote:how can there be an NOL, even if the state taxes are improperly allocated?
7-Aug-2019 12:37pm
supdat wrote:Putting aside the question of state tax, none of the other itemized deductions should be business.
Chay wrote:The rest of the itemized deductions are taken against nonbusiness income.
Nonbusiness Income
23,000 Pension
(23,800) Nonbusiness itemized deductions
800 Adjustment for limitation on nonbusiness itemized deductions
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0 Total net nonbusiness income
Business Income
2,194 Net profit from Schedule C
(155) SE Tax deduction
(2,200) State tax deduction erroneously treated as 100% business-related
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(161) Total net business income
Nilodop wrote:... the 2,200 state tax should be allocated between business and nonbusiness income..How do you determine the amount of state income taxes to use in the NOL calculation? It has to be otherwise deductible, which causes you to determine the amount that couldn't be deducted because of the $10,000 TCJA limit. Yes?
26 USC 164(b)(6) wrote:the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return).
7-Aug-2019 12:50pm
MSchmahl wrote:I think there is another general principle that taxpayers are allowed to, but not required to, take all deductions they are entitled to (except in certain cases impacting SE tax and EITC). I know this has been debated previously here.
If this is true, I could take the state income tax into account first, before considering just enough property tax to bring the total to $10,000. In other words, all of the state income tax, up to $10,000 total, would be considered for purposes of computing an NOL. I freely admit I don't have much support for this position, but it seems the most reasonable to me.
7-Aug-2019 1:21pm
7-Aug-2019 2:52pm
Section 208 of the Social Security Act, as amended, provides penalties for a person who makes any false statement or representation in connection with any matter arising under the Self-Employment Contributions Act of 1954, for the purpose of obtaining or increasing benefits under the Social Security Act.
7-Aug-2019 3:27pm
Accordingly, it is held that expenditures for State individual income taxes on net income from business profits, interest on State and Federal income taxes that are related to income derived from a trade or business carried on by the taxpayer, and litigating expenses in connection with such taxes, are "attributable to a taxpayer's trade or business" for purposes of section 172(d)(4) of the Code and, provided they are otherwise deductible, are allowable deductions in determining the net operating loss deduction.
7-Aug-2019 3:32pm
J. Maule wrote:The IRS has not acted as though all deductions are mandatory. Aside from a poorly drafted, and ultimately extraneous remark in a Chief Counsel Advice, the IRS has not purported to compel taxpayers to claim all allowable deductions. Only in two limited situations, for limited purposes, has the IRS taken the position that certain deductions must be claimed. One involves the computation of self employment income for social security purposes. The other involves the earned income tax credit issue, itself tied by cross-reference to the self-employment question.