Under the CARES Act, firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income for 2019, 2019 and 2020. The election to utilize the 5-year carryback period for 2018 and 2019 net operating losses must be made by the due date, including extensions for the filing of taxpayer’s return for the first taxable year ending after the date of the CARES ACT (i.e., the filing of the 2020 tax return).
NOLs cannot be carried back to offset foreign subsidiary earnings deemed repatriated under section 965. However, taxpayers can elect to exclude any tax years in which the foreign earnings were included in gross income from the calculation of the five-year carryback period, effectively allowing taxpayers to “skip” prior taxable years and reach back to taxable years past the five-year cutoff.
The CARES ACT also repeals the excess business income loss limitation for taxable years beginning before January 1, 2021. Thus, noncorporate taxpayers with business losses arising in 2018, 2019 and 2020 can utilize the 5-year carryback without regard to the excess business loss rules. This does not apply to capital losses.
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