Valuable, that’s what net operating loss (NOL) carrybacks and carryforwards are. When businesses suffer losses in a calendar year, they may be able to deduct those losses against previous or future tax returns and ?smooth? out income streams from year to year.
While the federal code allows 20 years of NOL carryforwards and 2 years of NOL carrybacks, states vary widely on their net operating loss policies. The Tax Foundation, a non-partisan think tank, issued relevant maps in the 2016 State Business Tax Climate Index. The first map shows the number of NOL carryforward years allowed by each state?s corporate income tax code. The second map shows NOL carryback years.
Thirty states and the District of Columbia offer 20 years of NOL carryforwards, while six states offer 15 years. Other states that are more stingy include Illinois, offering 12 years; Kansas, Michigan, New Hampshire, and Vermont, 10 years; Montana, seven years; and Arkansas and Rhode Island, five years. This year, Louisiana and New York both increased their number of carryforward years from 15 to 20.
Twelve states conform to the federal standard of offering 2 years of NOL carrybacks, and three states have a more generous provision of three years. The majority of states, 29, and the District of Columbia do not allow NOL carrybacks.
NOL Limits
Some states cap the amount of net operating losses that businesses are allowed to carry forward or back.New Hampshire caps its carryforwards at $10 million and Pennsylvania $5 million. Utah caps its carrybacks at $1 million, West Virginia at $300,000, Idaho at $100,000, and Delaware at $30,000.
Let’s Talk Tax
Find out how your business can take advantage of valuable tax savings. Contact Mark Dunning, partner at TaxOps Minimization, at 720.227.0420 or MDunning@TaxOps.com.
Additional Resources from TaxOps
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