The CARES Act has changed many items for taxpayers. One of these has to do with Net Operating Loss (NOL) rules. Prior to the CARES Act losses incurred for years starting with 2018 were only allowed to be carried forward to the next tax year with a limit on the amount that could be deducted each year. The CARES Act changed this and now NOLs incurred in years 2018, 2019, and 2020 can be carried back 5 years. This means that if your 2018 or 2019 return had an NOL or if your 2020 return, when filed, will have an NOL the loss is carried back 5 years to offset income in prior years.
In addition, prior to the CARES Act, there was a limitation on the amount of loss that was deductible in the years 2018 through 2025. This is called an excess business loss. Any active business that had an excess business loss was required to carry the excess loss forward to future years. The excess loss was the amount over $500,000 for married filing jointly and $250,00 for other covered taxpayers. The CARES Act has removed this limitation allowing 2018 and 2019 returns to be amended to report the full loss for the year. For the year 2020, there will be no excess business loss limitation but tax years beginning in 2021 – 2025 will see the return of the excess loss limitation.
Depending on the year and type of loss there are different forms to be filed and deadlines that must be met. If you believe you had an NOL or excess business loss in either 2018 or 2019 that you would like us to review, give us a call. Please contact us with any questions, we are glad to help.