When business deductions exceed income, the resulting net operating loss can offset other income - but since 2018 the deduction is capped at 80% of taxable income and the rest carries forward indefinitely. Enter your loss and income to see the real deduction and remaining carryforward.
Every figure below is computed with the same logic the calculator runs: cap the deduction at 80% of taxable income, carry the rest forward.
| Scenario | Loss | Taxable Income | Deductible | Carryforward |
|---|---|---|---|---|
| $500k loss against $300k income | $500,000 | $300,000 | $240,000 | $260,000 |
| $200k carryforward, no new loss | $0 | $1,000,000 | $200,000 | $0 |
| Loss below the 80% ceiling | $400,000 | $1,000,000 | $400,000 | $0 |
In the first row, 80% of $300,000 is $240,000 - so $260,000 of the loss survives and carries forward, even though the loss was larger.
Before the Tax Cuts and Jobs Act, NOLs could be carried back two years and forward twenty, and could wipe out taxable income entirely. Since 2018, for losses arising in tax years beginning after Dec 31, 2017, the rules are stricter: no carryback (except farming), indefinite carryforward, and the deduction is capped at 80% of taxable income computed before the NOL.
The cap means a C corporation can never use an NOL to reduce taxable income all the way to zero. There is always at least 20% of positive taxable income left on which the company pays 21% tax. The unused portion does not vanish - it waits, carrying forward until it is absorbed in a future profitable year.
Losses from years beginning before Jan 1, 2018 keep the old treatment: 2-year carryback, 20-year carryforward, and no 80% limitation. If you have both vintages, the older loss is generally used first and is not subject to the 80% cap. This calculator models the post-2017 rules, the common case for recent losses.
An NOL is most common for startups burning cash, businesses hit by a one-off downturn, and LLCs or S-corps with a bad year. Because pass-through owners report the loss on their personal return (subject to basis, at-risk, and passive-activity limits), a single bad year can shelter wages or investment income from other sources. The 80% cap is the essential constraint: it prevents a large accumulated NOL from erasing all future taxable income, so a business with a $5M NOL facing $1M of income can only deduct $800,000 this year and must carry the rest.
| Feature | Post-2017 Loss | Pre-2018 Loss |
|---|---|---|
| Carryback | Not allowed | 2 years |
| Carryforward | Indefinite | 20 years |
| Deduction cap | 80% of taxable income | No cap |
| Forms | Schedule A (1120) / Form 1045 | Form 1045 / 1139 |
Individual taxpayers claim the NOL as a Schedule 1 deduction, not subject to the standard deduction or itemized limits, but subject to the 80% of excess taxable income rule.
⚠️ Important: This is a simplified estimate of the federal NOL deduction for losses arising after 2017. It does not model the pre-2018 carryback rules, basis/at-risk/passive-activity limitations for pass-throughs, farming loss exceptions, or the 20-year-old-loss ordering rules. Confirm your position with a tax professional and IRS Publication 536.