The Montana Net Operating Loss (Form NOL) for 2018 is now available. It includes guidance on a new class of net operating losses (NOL) and how to include the loss limitation in section 461(l) of the Internal Revenue Code (IRC) in your NOL deduction so you can take it in future years.
Because of changes made to section 172 of the IRC in the Tax Cut and Jobs Act, Montana NOL deduction from losses incurred in 2018 must now follow new principles. This is because Montana statute has a rolling conformity with this federal section. For simplification, the Montana NOL instructions call the net operating losses following the new principles Class B NOLs.
- Class A NOL
- Class A NOLs are NOL deductions from losses incurred in tax years before 2018.
- These keep following the principles that applied in tax years before 2018.
- Class B NOL
- Class B NOL, including a 2018 NOL, cannot be carried back, except for farming losses, which can only be carried back two years.
- Class B NOL deductions cannot be more than 80 percent of your taxable income reported before such NOL deduction.
- As a result, when a Class B NOL deduction is taken, there will always be Montana taxable income. However, there is no longer any limit to the number of years you can carry forward such losses after taking an NOL deduction.
Form NOL also includes guidance on the new limitation in Subsection 461(l) of the IRC. If you have more than $250,000 of business losses, or $500,000 in the case of a joint return, the excess cannot be taken in 2018 and must be included in the Class B NOL deduction to carry forward to 2019.
You can find instructions about how to calculate excess losses for Montana tax purposes in the Montana Individual Income Tax (Form 2) Instructions.
