Idaho Gov. Brad Little has signed legislation amending the method of calculating a personal income taxpayer’s net operating loss (NOL). The amendments enact:
– a subtraction for amounts disallowed under IRC Sec. 461(l)(1)(B) treated as part of the taxpayer’s NOL carryforward for federal income tax purposes; and
– an addition for any deduction under IRC Sec. 199A.
Excess Business Losses Deduction
IRC Sec. 461 provides that excess business losses of noncorporate taxpayers are not allowed for tax years after 2017 and before 2026. Any excess business loss that is disallowed is treated as a NOL carryover to the following tax year.
Under legislation enacted in 2018, Idaho taxpayers were required to add back any amount limited by IRC Sec. 461 when determining the amount of a NOL. However, effective January 1, 2019, taxpayers must:
– subtract any amount disallowed under IRC Sec. 461 treated as part of the taxpayer’s NOL carryforward for federal income tax purposes; and
– limit the amount of the subtraction to the excess business loss under IRC Sec. 461(l)(1)(B).
Qualified Business Income Tax Deduction
Under IRC Sec. 199A, noncorporate taxpayers are allowed a deduction for up to 20% of domestic qualified business income from:
– S corporations; or
– sole proprietorships.
Effective January 1, 2019, any deduction allowed under IRC Sec. 199A must be added back when calculating an Idaho NOL. This modification will prevent the expense from creating or increasing the Idaho NOL.
Ch. 9 (H.B. 14), Laws 2019, effective February 8, 2019, and retroactively to January 1, 2019