Articles & Alerts

The recently passed CARES Act repealed provisions of The Tax Cuts and Jobs Act (TCJA) of 2017 that eliminated the ability to carryback Net Operating Losses (NOLs) and also limited the use of an NOL carryforward to 80% of taxable income. This important change now allows for NOLs incurred in tax years 2018, 2019 and 2020 to be carried back 5 years allowing for tax refund claims.

Owners of real estate often have tax losses from their properties created in part from depreciation deductions. While these tax losses were only able to be used to offset income in the future under prior law, they may now be able to be converted into much needed cash in the form of refunds of taxes paid in prior years.

Planning is the key to maximizing the value of using your NOL’s. Each dollar of NOL carryback can provide a wide range of tax savings depending on your tax rate during past years. In certain cases you may be able to recapture taxes paid at higher tax rates in prior years while in other cases your NOL’s may be more valuable in the future. Careful planning can help you “arbitrage” the value of your NOL and use it wisely.

As far as timing of potential refunds, the IRS has procedures for filing quick refund claims as opposed to filing amended tax returns which usually take longer to process. Typically, a taxpayer only has 12 months after the end of the year to file a quick refund claim. For NOL’s arising in tax years beginning in 2018 and ending before July 1, 2019, the IRS has granted a six month extension to file a quick refund claim application on Form 1139 or Form 1045.  Therefore, a calendar year taxpayer with a 2018 NOL has only until June 30, 2020 to file a quick refund claim.

Be careful to fully evaluate your best option to use your NOL’s before you file your 2019 tax return. If you chose to pass on your NOL carryback and instead use your NOL in the future, for NOLs that have occurred in 2018 or 2019, the time for which to make an election to waive the carryback is by the due date for filing the taxpayer’s return for the first taxable year ending after the date of the enactment of the Act (March 27, 2020). The election must be made on that return.  For example, an election to waive a calendar year 2018 or 2019 NOL carryback will be made on the 2020 return.

Keep in mind that all NOLs incurred in tax years beginning after December 31, 2017 and before January 1, 2021 are no longer subject to the 80% taxable income limitation, and instead can be used to offset all taxable income.

NOLs incurred in a tax year beginning after December 31, 2017 and before January 1, 2021 can be carried forward indefinitely, while NOLs incurred prior to this time are still subject to the 20 year carryforward period.

Without proper planning you could lose the chance to maximize the value of your NOL’s. Please reach out to your Anchin Relationship Partner or a member of our Real Estate Group so that we can personally address your questions and concerns. We will coordinate with our team of tax experts dedicated to assist with any issues associated with carryback claims, NOLs and amended returns. You can also contact our Anchin COVID-19 Resource Team at [email protected]. 

Stay tuned for more informative e-mails to follow.

Disclaimer: Please note this is based on the information that is currently available and is subject to change.