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Net Operating Loss

Net Operating Loss Suspension

California Assembly Bill 85 (AB 85)

includes provisions to suspend the use of NOL deductions. For taxable years 2020, 2021, and 2022, California has suspended the net operating loss (NOL) carryover deduction. Both corporations and individual taxpayers may continue to compute and carryover an NOL during the suspension period. Different rules apply depending on the amount of income per year. The suspension does not apply:

➢ For individual taxpayers, if they have net business income or modified adjusted gross income of less than $1 million.
➢ For corporate taxpayers, if their income subject to California taxation is less than $1 million.

Disaster loss carryovers are not affected by the NOL suspension rules.NOL deductions disallowed during this time period will be extended for each year they are suspended. The carryover period for suspended losses is extended by:

➢ Three years for losses incurred in taxable years beginning before January 1, 2020.
➢ Two years for losses incurred in taxable years beginning on or after January 1, 2020, and before January 1, 2021.
➢ One year for losses incurred in taxable years beginning on or after January 1, 2021, and before January 1, 2022.

If the taxpayer has a NOL, he or she has two options:

Option 1
The taxpayer can carryback his or her NOL deduction to the past 2 tax years by filing his or her amended returns and carryforward any excess. For losses incurred in tax years:
➢ 2019 and after, a NOL can no longer be carried back to the past 2 years.
➢ 2013 through 2018, a NOL can be carried back to each of the past 2 years.

Option 2
The taxpayer can waive his or her carryback to carryforward his or her entire NOL deduction to future tax years.
The taxpayer may elect to waive his or her carryback by marking the checkbox on an original timely filed return (including extensions), or on an amended return filed within 6 months of the original due date of the return (not including extensions).

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