A C Corporation has a net operating loss (NOL) carryforward of $100,000 arising from Year 1 (post-TCJA). In Year 2, the corporation has taxable income of $80,000 before the NOL deduction. What is the maximum NOL deduction the corporation can claim in Year 2, and what is the carryforward to Year 3?

Answer options:

Deduction: $80,000; Carryforward: $20,000

Deduction: $64,000; Carryforward: $36,000

Deduction: $100,000; Carryforward: $0

Deduction: $80,000; Carryforward: $0

How to approach this question

Apply the post-2017 NOL rule: Deduction is limited to 80% of Taxable Income (computed without the NOL).

Full Answer

B.Deduction: $64,000; Carryforward: $36,000✓ Correct

Under IRC §172(a)(2), for NOLs arising in tax years beginning after 2017, the deduction is limited to 80% of taxable income. Taxable Income = $80,000. Limit = 80% * $80,000 = $64,000. The corporation deducts $64,000. The unused NOL ($100,000 - $64,000 = $36,000) is carried forward indefinitely.

Common mistakes

Applying the pre-TCJA rule (100% offset) or calculating the carryforward incorrectly.

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