net operating loss (NOL)

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A net operating loss occurs when a company’s deductions exceed their gross income for a given year. The Internal Revenue Code § 172(c) defines net operating loss as “the excess of the deductions allowed by this chapter over the gross income.” § 172(b) allows taxpayers to carryback and carryover the net operating loss amount as a deduction to offset their tax liability in those other periods. However, 172(a) limits the deduction to 80% of taxable income.

[Last updated in December of 2020 by the Wex Definitions Team]