loss carryover
Loss carryover, also called a loss carryforward, is a tax rule that permits an unused loss from one tax year to reduce taxable income or gains in a later tax year. A carryover differs from a carryback, which applies a loss to an earlier year. The existence, amount, character, and expiration of a carryover depend on the type of loss, the taxpayer, the year in which the loss arose, and the governing federal or state law. A financial-statement loss or decline in an asset's value does not necessarily create a tax loss carryover.
One common example is a federal net operating loss (NOL). Under 26 U.S.C. § 172, most NOLs arising in tax years beginning after 2017 generally may be carried forward to later tax years without a fixed expiration date. For a deduction claimed in a tax year beginning after December 31, 2020, the amount deductible from those post-2017 NOLs generally is limited to 80 percent of taxable income remaining after the statutory adjustments and any pre-2018 NOL carryovers. NOLs arising before 2018 and certain businesses, including nonlife insurance companies, follow different rules. Most NOLs arising in tax years beginning after 2020 have no general carryback, although farming losses and nonlife insurance-company losses have specified carryback rules, and temporary rules applied to losses arising in 2018, 2019, and 2020.
Capital losses have separate rules. For an individual, capital losses first offset capital gains. If losses exceed gains, 26 U.S.C. § 1211 generally permits up to $3,000 of net capital loss ($1,500 for a married person filing separately) to reduce other income for the year. The unused amount carries forward to later years while retaining its short-term or long-term character under 26 U.S.C. § 1212. A corporation generally may use capital losses only against capital gains; a corporate net capital loss is generally carried back three years and forward five years and is treated as short-term in the carry year.
Carryovers also can be limited, reduced, or delayed. Under 26 U.S.C. § 382, an ownership change involving a loss corporation can limit how much of its pre-change NOLs and certain other tax attributes may offset income after the change. The limitation is especially important in mergers, stock acquisitions, restructurings, and bankruptcy transactions. Other provisions can limit or suspend losses because of basis, at-risk, passive-activity, excess-business-loss, consolidated-return, or continuity requirements
Taxpayers must generally substantiate the original loss and track how much is absorbed each subsequent year. Federal carryover rules can change and often contain transition provisions, while state tax systems may use different periods, percentages, or conformity dates. The governing statute and current instructions for the particular taxpayer and loss year should be reviewed and verified.
[Last reviewed in August of 2026 by the Wex Definitions Team]
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