What Business Owners Must Know About Net Operating Loss Rules in 2025 and Beyond

by | May 19, 2026

ARTICLE | May 19, 2026

If your business had a rough year, the tax code may actually be on your side -- but only if you know how to use it. Net Operating Loss (NOL) deductions exist precisely to help businesses offset bad years against good ones, smoothing out the tax burden over time. But the rules governing how and when you can use those losses have changed significantly in recent years, and many business owners are still navigating the confusion left in the wake of multiple overlapping pieces of legislation.

What Changed -- and What Stuck

The 2017 Tax Cuts and Jobs Act (TCJA) fundamentally restructured how NOLs work. Before the TCJA, businesses could carry losses back two years to claim a refund on previously paid taxes, and carry them forward up to 20 years to offset future income -- with no limit on how much of that income the NOL could offset. The TCJA eliminated carrybacks for most businesses (farming losses are a notable exception), introduced an indefinite carryforward period, and capped the annual NOL deduction at 80% of taxable income. That last point is critical: even if your accumulated NOL carryforwards exceed your entire taxable income for a given year, you still owe taxes on 20% of that income.

Then came the pandemic. The CARES Act of 2020 temporarily loosened those restrictions, allowing businesses to carry 2018, 2019, and 2020 NOLs back five years and fully offset taxable income with no percentage cap. Those provisions have since expired. The One Big Beautiful Bill Act, enacted in July 2025, confirmed that the TCJA's framework -- the 80% income limitation and the elimination of most carrybacks -- is here to stay. There is no legislative reset coming. Business owners planning around NOLs need to operate under today's permanent rules.

Why It Matters for Your 2025 Tax Planning

The indefinite carryforward is genuinely valuable -- but only if you use it strategically. Because you cannot carry most NOLs back to claim a prior-year refund, there is no quick cash infusion to help you weather a downturn. Instead, the benefit lives in the future, making long-term tax planning essential. For businesses in cyclical industries -- manufacturing, real estate, construction, and healthcare, among others -- understanding how to sequence and apply NOL carryforwards can meaningfully reduce tax liability over a multi-year horizon.

It is also worth noting that pass-through entity owners -- S corporation shareholders, partners, and LLC members -- claim NOL deductions on their individual returns, not at the entity level. This adds another layer of complexity, particularly for high-net-worth individuals with income from multiple sources. Noncorporate taxpayers may also face excess business loss limitations, which can further restrict the deductions available in any given year.

Don't Leave Money on the Table

NOL rules are complex, and the consequences of misapplying them -- or simply overlooking them -- can be significant. Whether you are filing your 2025 return or building a multi-year tax strategy, now is the time to take a close look at any accumulated losses and ensure you are using them as effectively as possible.

At KHA Accountants, PLLC, our tax professionals have deep experience helping businesses and individuals navigate complex tax legislation and turn it into actionable strategy. Contact our office today to speak with a KHA tax advisor about how NOL carryforwards fit into your broader tax plan.

 

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