TAX FLASH: If there is a net loss generated from the cost segregation study, that loss can be carried back. A net operating loss (NOL) is the excess of business deductions (computed with certain modifications) over gross income in a particular tax year. The loss can be deducted, through an NOL carryback or carryover, in another tax year in which gross income exceeds business deductions.
In general, NOLs may be carried back two years and forward 20 years. However, if the taxpayer qualifies, the NOL can be carried back as far as 3, 4 or 5 years. The NOL is first carried back to the earliest tax year for which it’s allowable as a carryback or a carryover, and is then carried to the next earliest tax year. A taxpayer may elect to forego the entire carryback period for an NOL and instead carry it forward. This is significant because if there is tax dollars paid in prior years and the cost segregation study takes a company from being profitable for tax purposes to being in a net operating loss situation, the company can obtain tax refunds from the tax years still open by statute.