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 corporation's taxable income for Year 2 after the NOL deduction?

Answer options:

$20,000

$16,000

$80,000

How to approach this question

Calculate 80% of current year taxable income. This is the maximum NOL deduction. Subtract from taxable income.

Full Answer

C.$16,000✓ Correct

IRC §172(a). Post-TCJA NOL deduction is limited to 80% of taxable income. <br/>Limit = $80,000 * 80% = $64,000. <br/>NOL Used = $64,000. <br/>Remaining Taxable Income = $80,000 - $64,000 = $16,000. <br/>NOL Carryforward remaining = $100,000 - $64,000 = $36,000.

Common mistakes

Offsetting 100% of income (pre-TCJA rule).

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