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5-year 2008, 2009 loss carrybacks for everybody?

October 30, 2009

The silver lining of the bill to extend the scandal-plagued Popular First-time Homebuyer Credit might be a five-year net operating loss carryback. A Senate Finance Committee release says:

The legislation also expands the net operating loss carryback (NOL) provision to allow U.S. companies of every size to carry back losses incurred in either 2008 or 2009 against income arned in any of the five prior years, limited to 50 percent of the taxpayer’s income in the fifth year.

Aside from the weird "50 percent" limitation, this would be a welcome source of cash for many taxpayers. Absent this legislation, taxpayers with NOLs could only recover taxes paid in the last two years, with remaining losses carrying forward to offset future income, assuming the taxpayer can stay in business.

The stimulus legislation authorized taxpayers to carry back only 2008 losses for five years, but that provision was limited to entities with $15 million or less of gross receipts, severely limiting its usefulness.

Of course, this won't apply to Iowa taxpayers trying to carry back losses on state returns. Individuals will only get Iowa's standard two year carryback, and Iowa no longer allows corporations to carry back NOLs at all; they only carry forward.