CARES Act – Net Operating Loss Carryback Rules

(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.