Question

Which of the following statements regarding net operating losses is true?

a. When a corporation applies a net operating loss carryover, it reports a favorable, permanent book-tax difference in the amount of the applied carryover.
b. A corporations can carry a net operating loss incurred in 2017 forward indefinitely.
c. A corporation can carry forward a net operating incurred in 2018 to 2019 but it may offset only 80 percent of taxable income (before the NOL deduction) in 2019.
d. None of these is a true statement.

Answer 1

The true statement about net operating losses is that for losses incurred in 2018, a corporation can carry forward the NOL to 2019 and use it to offset up to 80 percent of its taxable income before the NOL deduction, as per the Tax Cuts and Jobs Act of 2017.

Step-by-step explanation:

The correct statement regarding net operating losses is: A corporation can carry forward a net operating loss incurred in 2018 to 2019 but it may offset only 80 percent of taxable income (before the NOL deduction) in 2019. This rule was implemented by the Tax Cuts and Jobs Act of 2017, which altered the treatment of NOLs.

Before the Tax Cuts and Jobs Act, businesses could carry back NOLs two years and carry forward losses for 20 years to offset taxable income. However, for losses arising in tax years beginning after December 31, 2017, the carryback of NOLs was eliminated, except for certain farming losses and non-life insurance companies.

Instead, these NOLs can now be carried forward indefinitely. Moreover, for losses arising in tax years beginning after December 31, 2017, and before January 1, 2021, the NOL deduction is limited to 80% of taxable income in a given year.