CARES Act - Net Operating Loss Carryback Rules
Can NOL rule changes help fund your next business aircraft acquisition?
April 9, 2020
(See memo here.)
The CARES Act reinstates Net Operating Loss (NOL) carryback regulation for corporations and individuals. A 2020 tax loss can be carried back 5 years to 2015 tax return and can result in a tax refund for tax paid in 2015 tax year.
For C corporations, it means getting tax refunds when income was taxed at 35% bracket. The 2017 tax reforms had eliminated this provision and now reinstated by the CARES Act.
Due to the Coronavirus pandemic and the lockdown of the economy, many companies will experience a significant decline in income in 2020. With the acquisition of a business aircraft and 100% bonus depreciation, a taxpayer can receive income tax refunds from as far back as 2015. While it may be a daunting task to make a significant capital acquisition in the current economic environment, for those companies that are able to weather the storm and position your business for a robust rebound, this tax provision should be carefully evaluated with your tax advisors.
Same regulations apply to pass-through entities like S corps and LLC’s. The NOL will be applied on the personal tax return (Form 1040) of the owners.
Below is a very simplified example:
2020 C corporation taxable income - $1M.
Corporation buys a $5M business aircraft, takes 100% bonus, creates a net operating loss - $4M.
Carryback this loss to 2015 tax year and apply for refunds at 35% tax rate = $1.4M income tax refund.