A calendar-year C corporation generates a net operating loss in its 2025 tax year and has no net operating losses carried over from any earlier year. Under IRC Section 172 as amended by the Tax Cuts and Jobs Act, how may the corporation use this 2025 loss?
- Carry it back two years to offset taxable income reported in 2023 and 2024, then carry any remainder forward
- Carry it forward indefinitely, but the deduction in any future year is limited to 80% of that year's taxable income computed before the net operating loss deduction
- Carry it forward for a maximum of 20 years, fully offsetting up to 100% of taxable income in each carryforward year
- Use the loss to offset income in the current 2025 tax year only; any unused amount is forfeited and cannot be carried to another year
Why B? And why not the others?
Correct answer: B. Carry it forward indefinitely, but the deduction in any future year is limited to 80% of that year's taxable income computed before the net operating loss deduction
For net operating losses arising in tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act amended IRC Section 172 to eliminate the general two-year carryback (aside from narrow farming and certain insurance-company exceptions), allow the loss to be carried forward indefinitely, and cap the deduction in any carryforward year at 80% of that year's taxable income computed without regard to the net operating loss deduction itself. The option describing a two-year carryback to 2023 and 2024 describes the pre-2018 rule that Section 172 no longer applies to a 2025 loss outside the narrow statutory exceptions. The option allowing a full 100%-of-income offset correctly notes that the carryforward period is unlimited in duration but wrongly ignores the 80% cap that applies to post-2017 losses. The option limiting use of the loss to the current year alone ignores that indefinite carryforward is exactly what current law permits; the loss is not forfeited simply because it is not fully used in its origin year.
Source: IRC Section 172, as amended by the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97)