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Internal Revenue Code · 26 U.S.C.

§ 172. Net operating loss deduction

In force Text current through Public Law 119-121 (October 9, 2026) release point 119-121

Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).

Cite as 26 U.S.C. § 172

At a glance

Read from the text, the source credit and the official notes. Not part of the law.

Status
In force
Enacted
September 2, 1958 by Pub. L. 85–866
Last amended
July 4, 2025 by Pub. L. 119–21
Amendments
36 dated changes in the source credit
Length
7 subsections · 2,763 words · about 12 min to read
Defines
4 terms
Cross-references
cites 18; cited by 47 Code sections and 128 other regulations
Regulations
11 issued under this section
(a) Deduction allowed There shall be allowed as a deduction for the taxable year an amount equal to—
(1) in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) in the case of a taxable year beginning after December 31, 2020, the sum of—
(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus
(B) the lesser of—
(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or
(ii) 80 percent of the excess (if any) of—
(I) taxable income computed without regard to the deductions under this section and sections 199A and 250, over
(II) the amount determined under subparagraph (A).
For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.
(b) Net operating loss carrybacks and carryovers
(1) Years to which loss may be carried
(A) General rule A net operating loss for any taxable year—
(i) shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and
(ii) except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—
(I) in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and
(II) in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.
(B) Farming losses
(i) In general

In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss.

(ii) Farming loss For purposes of this section, the term “farming loss” means the lesser of—
(I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or
(II) the amount of the net operating loss for such taxable year.
(iii) Coordination with paragraph (2)

For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year.

(iv) Election

Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year.

(C) Insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year—
(i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and
(ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss.
(D) Special rule for losses arising in 2018, 2019, and 2020
(i) In general In the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021—
(I) such loss shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss, and
(II) subparagraphs (B) and (C)(i) shall not apply.
(ii) Special rules for REITs For purposes of this subparagraph—
(I) In general

A net operating loss for a REIT year shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss.

(II) Special rule

In the case of any net operating loss for a taxable year which is not a REIT year, such loss shall not be carried to any preceding taxable year which is a REIT year.

(III) REIT year

For purposes of this subparagraph, the term “REIT year” means any taxable year for which the provisions of part II of subchapter M (relating to real estate investment trusts) apply to the taxpayer.

(iii) Special rule for life insurance companies

In the case of a life insurance company, if a net operating loss is carried pursuant to clause (i)(I) to a life insurance company taxable year beginning before January 1, 2018, such net operating loss carryback shall be treated in the same manner as an operations loss carryback (within the meaning of section 810 as in effect before its repeal) of such company to such taxable year.

(iv) Rule relating to carrybacks to years to which section 965 applies

If a net operating loss of a taxpayer is carried pursuant to clause (i)(I) to any taxable year in which an amount is includible in gross income by reason of section 965(a), the taxpayer shall be treated as having made the election under section 965(n) with respect to each such taxable year.

(v) Special rules for elections under paragraph (3)
(I) Special election to exclude section 965 years

If the 5-year carryback period under clause (i)(I) with respect to any net operating loss of a taxpayer includes 1 or more taxable years in which an amount is includible in gross income by reason of section 965(a), the taxpayer may, in lieu of the election otherwise available under paragraph (3), elect under such paragraph to exclude all such taxable years from such carryback period.

(II) Time of elections

An election under paragraph (3) (including an election described in subclause (I)) with respect to a net operating loss arising in a taxable year beginning in 2018 or 2019 shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the first taxable year ending after the date of the enactment of this subparagraph.

(2) Amount of carrybacks and carryovers The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the “loss year”) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall—
(A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter,
(B) not be considered to be less than zero, and
(C) for taxable years beginning after December 31, 2020, be reduced by 20 percent of the excess (if any) described in subsection (a)(2)(B)(ii) for such taxable year.
(3) Election to waive carryback

Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.

(c) Net operating loss defined

For purposes of this section, the term “net operating loss” means the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d).

(d) Modifications The modifications referred to in this section are as follows:
(1) Net operating loss deduction

No net operating loss deduction shall be allowed.

(2) Capital gains and losses of taxpayers other than corporations In the case of a taxpayer other than a corporation—
(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includable on account of gains from sales or exchanges of capital assets; and
(B) the exclusion provided by section 1202 shall not be allowed.
(3) Deduction for personal exemptions

No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed.

(4) Nonbusiness deductions of taxpayers other than corporations In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer’s trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence—
(A) any gain or loss from the sale or other disposition of—
(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or
(ii) real property used in the trade or business,
shall be treated as attributable to the trade or business;
(B) the modifications specified in paragraphs (1), (2)(B), and (3) shall be taken into account;
(C) any deduction for casualty or theft losses allowable under paragraph (2) or (3) of section 165(c) shall be treated as attributable to the trade or business; and
(D) any deduction allowed under section 404 to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall not be treated as attributable to the trade or business of such individual.
(5) Computation of deduction for dividends received

The deductions allowed by sections 243 (relating to dividends received by corporations) and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) (relating to limitation on aggregate amount of deductions).

(6) Modifications related to real estate investment trusts In the case of any taxable year for which part II of subchapter M (relating to real estate investment trusts) applies to the taxpayer—
(A) the net operating loss for such taxable year shall be computed by taking into account the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in section 857(b)(2)(B));
(B) where such taxable year is a “prior taxable year” referred to in paragraph (2) of subsection (b), the term “taxable income” in such paragraph shall mean “real estate investment trust taxable income” (as defined in section 857(b)(2)); and
(C) subsection (a)(2)(B)(ii)(I) shall be applied by substituting “real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561))” for “taxable income”.
[(7) Repealed. Pub. L. 115–97, title I, § 13305(b)(3), Dec. 22, 2017, 131 Stat. 2126]
(8) Qualified business income deduction

Any deduction under section 199A shall not be allowed.

(9) Deduction for foreign-derived deduction eligible income

The deduction under section 250 shall not be allowed.

(e) Law applicable to computations

In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year.

(f) Special rule for insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company—
(1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) subparagraph (C) of subsection (b)(2) shall not apply.
(g) Cross references
(1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381.
(2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382.

(Aug. 16, 1954, ch. 736, 68A Stat. 63; Pub. L. 85–866, title I, §§ 14(a), (b), 64(b), title II, § 203(a), (b), Sept. 2, 1958, 72 Stat. 1611, 1656, 1678; Pub. L. 87–710, § 1, Sept. 27, 1962, 76 Stat. 648; Pub. L. 87–792, § 7(f), Oct. 10, 1962, 76 Stat. 829; Pub. L. 87–794, title III, § 317(b), Oct. 11, 1962, 76 Stat. 889; Pub. L. 88–272, title II, §§ 210(a), (b), 234(b)(5), Feb. 26, 1964, 78 Stat. 47, 48, 115; Pub. L. 90–225, § 3(a), Dec. 27, 1967, 81 Stat. 732; Pub. L. 91–172, title IV, § 431(b), Dec. 30, 1969, 83 Stat. 619; Pub. L. 91–677, § 2(a)–(c), Jan. 12, 1971, 84 Stat. 2061; Pub. L. 94–455, title VIII, § 806(a)–(c), title X, § 1052(c)(3), title XVI, § 1606(b), (c), title XIX, §§ 1901(a)(29), 1906(b)(13)(A), title XXI, § 2126, Oct. 4, 1976, 90 Stat. 1598, 1648, 1755, 1756, 1769, 1834, 1920; Pub. L. 95–30, title I, § 102(b)(2), May 23, 1977, 91 Stat. 137; Pub. L. 95–600, title III, § 371(a), (b), title VI, § 601(b)(1), title VII, §§ 701(d)(1), 703(p)(1), Nov. 6, 1978, 92 Stat. 2859, 2896, 2900, 2943; Pub. L. 96–222, title I, §§ 103(a)(15), 106(a)(1), (6), (7), Apr. 1, 1980, 94 Stat. 214, 221; Pub. L. 96–595, § 1(a), Dec. 24, 1980, 94 Stat. 3464; Pub. L. 97–34, title II, § 207(a), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97–354, § 5(a)(22), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 97–362, title I, § 102(a)–(c), Oct. 25, 1982, 96 Stat. 1727, 1728; Pub. L. 98–369, div. A, title I, §§ 91(d), 177(c), title IV, § 491(d)(5), title VII, § 722(a)(4), July 18, 1984, 98 Stat. 606, 710, 849, 973; Pub. L. 99–514, title I, § 104(b)(4), title III, § 301(b)(3), title IX, §§ 901(d)(4)(B), 903(a), (b), title XIII, § 1303(b)(1), (2), title XVIII, § 1899A(6), Oct. 22, 1986, 100 Stat. 2105, 2217, 2380, 2383, 2658, 2958; Pub. L. 100–647, title I, §§ 1003(a)(1), 1009(c), Nov. 10, 1988, 102 Stat. 3382, 3449; Pub. L. 101–239, title VII, § 7211(a), (b), Dec. 19, 1989, 103 Stat. 2342, 2343; Pub. L. 101–508, title XI, §§ 11324(a), 11701(d), 11704(a)(2), 11811(a)–(b)(2)(A), (3), (4), Nov. 5, 1990, 104 Stat. 1388–465, 1388–507, 1388–518, 1388–530, 1388–532 to 1388–534; Pub. L. 103–66, title XIII, § 13113(d)(1), Aug. 10, 1993, 107 Stat. 429; Pub. L. 104–188, title I, §§ 1702(h)(2), (16), 1704(t)(5), (30), Aug. 20, 1996, 110 Stat. 1873, 1874, 1887, 1889; Pub. L. 105–34, title X, § 1082(a), (b), Aug. 5, 1997, 111 Stat. 950; Pub. L. 105–277, div. J, title II, § 2013(a)–(c), title III, § 3004(a), title IV, §§ 4003(h), 4004(a), Oct. 21, 1998, 112 Stat. 2681–902, 2681–905, 2681–910; Pub. L. 107–147, title I, § 102(a), (b), title IV, § 417(8), Mar. 9, 2002, 116 Stat. 25, 56; Pub. L. 108–311, title IV, § 403(b)(1), Oct. 4, 2004, 118 Stat. 1187; Pub. L. 109–58, title XIII, § 1311, Aug. 8, 2005, 119 Stat. 1009; Pub. L. 109–135, title IV, §§ 402(f), 403(a)(17), Dec. 21, 2005, 119 Stat. 2611, 2619; Pub. L. 110–343, div. C, title VII, §§ 706(a)(2)(D)(v), (vi), 708(a), (b), (d), Oct. 3, 2008, 122 Stat. 3922, 3924, 3925; Pub. L. 111–5, div. B, title I, § 1211(a), (b), Feb. 17, 2009, 123 Stat. 335, 336; Pub. L. 111–92, § 13(a), Nov. 6, 2009, 123 Stat. 2992; Pub. L. 113–295, div. A, title II, §§ 211(c)(1)(B), 221(a)(30)(A), (B), (41)(B), Dec. 19, 2014, 128 Stat. 4033, 4041, 4044; Pub. L. 115–97, title I, §§ 11011(d)(1), 13302(a)–(c)(2)(A), (d), 13305(b)(3), 14202(b)(1), Dec. 22, 2017, 131 Stat. 2071, 2121–2123, 2126, 2216; Pub. L. 115–141, div. T, § 101(a)(2)(B), div. U, title IV, § 401(a)(53), Mar. 23, 2018, 132 Stat. 1155, 1186; Pub. L. 116–136, div. A, title II, § 2303(a)(1)–(2)(B), (b), (c)(2), Mar. 27, 2020, 134 Stat. 352, 353, 355; Pub. L. 119–21, title VII, § 70323(b)(2)(C)(ii), July 4, 2025, 139 Stat. 206.)

Terms defined here

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Regulations under this section

Treasury regulations (26 CFR) issued under § 172

Cross-references

Computed from the citations in the text of Title 26 and 26 CFR.

This section cites 18 other sections

Cited by 47 Code sections

Show 23 more

Cited in 128 regulations not issued under it

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Amendment history

From the source credit and the official notes, newest first.

  1. Amended by Pub. L. 119–21Parts changed in 2025: (d)(9)
  2. Amended by Pub. L. 116–136Parts changed in 2020: (a) (b)(1)(A) (b)(1)(A)(i) (b)(1)(D) (b)(2)(C) (d)(6)(C)
  3. Amended by Pub. L. 115–141Parts changed in 2018: (d)(5) (d)(8)
  4. Amended by Pub. L. 115–97Parts changed in 2017: (a) (b)(1)(A)(i) (b)(1)(A)(ii) (b)(1)(B) (b)(1)(C) (b)(1)(D) (b)(2) (d)(6)(C) (d)(7) (d)(8) (d)(9) (f) (h)
  5. Amended by Pub. L. 113–295Parts changed in 2014: (b)(1)(D) (b)(1)(D)(i)(II) (b)(1)(D)(ii) (b)(1)(E) (b)(1)(E)(ii) (b)(1)(E)(ii)(II) (b)(1)(F) (b)(1)(F)(ii)(II) (b)(1)(G) (d)(5) (g) (g)(2)(F) (g)(4)(B)(ii) (h) (h)(1) (h)(3) (i)
  6. Amended by Pub. L. 111–92Parts changed in 2009: (b)(1)(H) (k)
  7. Amended by Pub. L. 111–5
  8. Amended by Pub. L. 110–343Parts changed in 2008: (b)(1)(F)(ii) (b)(1)(F)(ii)(II) (b)(1)(F)(ii)(III) (b)(1)(J) (i)(1) (j)
  9. Amended by Pub. L. 109–135Parts changed in 2005: (b)(1)(I) (b)(1)(I)(i) (b)(1)(I)(ii)(I) (b)(1)(I)(iv) (d)(7)
  10. Amended by Pub. L. 109–58
  11. Amended by Pub. L. 108–311Parts changed in 2004: (b)(1)(H)
  12. Amended by Pub. L. 107–147Parts changed in 2002: (b)(1)(F)(i) (b)(1)(H) (j)
  13. Amended by Pub. L. 105–277Parts changed in 1998: (b)(1)(F)(ii) (b)(1)(F)(iv) (b)(1)(G) (d)(4)(C) (f)(1)(B) (i)
  14. Amended by Pub. L. 105–34Parts changed in 1997: (b)(1)(A)(i) (b)(1)(A)(ii) (b)(1)(F)
  15. Amended by Pub. L. 104–188Parts changed in 1996: (b)(1)(E)(ii) (h)(3)(B)(i) (h)(4)(B) (h)(4)(C)
  16. Amended by Pub. L. 103–66Parts changed in 1993: (d)(2) (d)(4)(B)
  17. Amended by Pub. L. 101–508Parts changed in 1990: (b) (b)(1)(M)(iii) (f) (g) (g)(2) (h) (h)(3)(B)(ii) (h)(4)(B) (i) (j) (k) (l)
  18. Amended by Pub. L. 101–239Parts changed in 1989: (b)(1)(M) (m)
  19. Amended by Pub. L. 100–647Parts changed in 1988: (b)(1)(A) (b)(1)(B) (b)(1)(K) (d)(4)(B)
  20. Amended by Pub. L. 99–514Parts changed in 1986: (b)(1)(A) (b)(1)(F) (b)(1)(G) (b)(1)(H) (b)(1)(J) (b)(1)(L) (d)(2) (d)(6) (d)(7) (k)(2) (l)
  21. Amended by Pub. L. 98–369Parts changed in 1984: (b)(1)(A) (b)(1)(H) (b)(1)(H)(i) (b)(1)(K) (b)(2)(A) (d)(4)(D) (d)(6) (h) (i) (j) (k)
  22. Amended by Pub. L. 97–362Parts changed in 1982: (b)(1)(A) (b)(1)(B) (b)(1)(H) (b)(1)(I) (b)(1)(J) (f) (i) (j) (k)
  23. Amended by Pub. L. 97–354
  24. Amended by Pub. L. 97–34Parts changed in 1981: (b)(1)(B) (b)(1)(C) (b)(1)(E)(i)(II) (b)(1)(E)(ii) (g)(3)(C)
  25. Amended by Pub. L. 96–595Parts changed in 1980: (b)(1)(A) (b)(1)(B) (b)(1)(E) (b)(1)(I)
  26. Amended by Pub. L. 96–222
  27. Amended by Pub. L. 95–600Parts changed in 1978: (b)(1)(A) (b)(1)(B) (b)(1)(H) (b)(3)(A) (b)(3)(B) (b)(3)(C) (b)(3)(D) (i)
  28. Amended by Pub. L. 95–30Parts changed in 1977: (d)(8)
  29. Amended by Pub. L. 94–455Parts changed in 1976: (b)(1)(B) (b)(1)(C) (b)(1)(D) (b)(1)(E) (b)(2) (b)(3) (b)(3)(A)(i) (b)(3)(C)(i) (b)(3)(C)(ii) (b)(3)(E) (b)(3)(F) (c) (d)(5) (d)(7) (e) (f) (g) (g)(3)(C) (g)(4) (h) (i) (j)
  30. Amended by Pub. L. 91–677Parts changed in 1971: (b)(1)(D) (b)(2) (k)(3)
  31. Amended by Pub. L. 91–172Parts changed in 1969: (b)(1)
  32. Amended by Pub. L. 90–225Parts changed in 1967: (b)(1) (b)(3)(E)
  33. Amended by Pub. L. 88–272Parts changed in 1964: (b) (j)(1) (k)
  34. Amended by Pub. L. 87–794Parts changed in 1962: (b)(1) (b)(2) (b)(3) (d)(4)(D) (j)
  35. Amended by Pub. L. 87–792
  36. Amended by Pub. L. 87–710
  37. Enacted by Pub. L. 85–866Parts changed in 1958: (b) (f)(3) (g)(3) (h)

Where it sits in the Code

  1. Subtitle A Income Taxes
  2. Chapter 1 NORMAL TAXES AND SURTAXES
  3. Subchapter B Computation of Taxable Income
  4. Part VI ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

Nearby sections

Official notes

The Law Revision Counsel's notes for this section (amendments, effective dates and related laws) are long, so they have their own page.