Can I use a company's NOLs after I buy it?
Usable, but limited after an ownership change
Only within limits. After an ownership change, IRC §382 caps the net operating losses (NOLs) the company can use each year at the loss company's value immediately before the change multiplied by the IRS long-term tax-exempt rate, which is 3.88% for September 2026 changes. An ownership change occurs when 5-percent shareholders increase their ownership by more than 50 percentage points within a testing period, generally three years. Price the losses accordingly.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- A purchase of more than 50% of a loss corporation is generally an ownership change.
- Annual limit = value of the old loss corporation × the long-term tax-exempt rate (3.88% for September 2026).
- Unused limitation carries forward and increases the next year's limit (§382(b)(2)).
- If the business is not continued for two years after the change, the limit is zero (§382(c)).
- NOLs from tax years beginning after 2017 do not expire, but they can offset only 80% of taxable income (§172(a)).
What it is
A company that has lost money carries net operating losses (NOLs) that can offset its future taxable income. Buyers of loss companies often assign value to those NOLs. Section 382 exists to stop acquirers from buying a company mainly to use its losses against the buyer's profits.
After an ownership change, the company can still use its pre-change losses, but only up to an annual amount set by formula. The formula ties the annual usage to the value of the company that generated the losses, not to the size of the loss pile.
What the law says
IRC §382(a) provides that the taxable income of a new loss corporation for any post-change year that may be offset by pre-change losses cannot exceed the section 382 limitation. Under §382(b)(1), that limitation generally equals the value of the old loss corporation multiplied by the long-term tax-exempt rate. The IRS publishes the rate monthly in a revenue ruling; Rev. Rul. 2026-17 sets it at 3.88% for ownership changes in September 2026.
Under §382(b)(2), any limitation not used in a year is added to the next year's limitation. Under §382(c)(1), if the new loss corporation does not continue the old loss corporation's business enterprise at all times during the two years after the change, the limitation is zero. Section 382(h) adjusts the limitation for built-in gains and losses, and §383 applies similar rules to credit carryforwards.
The NOL deduction itself is also limited by §172(a): losses arising in tax years beginning after December 31, 2017 can offset no more than 80% of taxable income (computed before the NOL, §199A, and §250 deductions) but carry forward indefinitely. Losses from earlier years keep their original carryforward periods. IRM 4.11.11.2 reminds examiners that ownership changes can limit or prohibit NOL carryforwards.
Requirements and tests
The main tests are:
- Ownership change: an increase of more than 50 percentage points in the stock owned by one or more 5-percent shareholders over the lowest percentage each owned during the testing period (generally three years).
- Equity structure shifts, such as mergers and some recapitalizations, are tested under the same rules.
- Value: generally the value of the loss corporation's stock immediately before the change, reduced for certain capital contributions (§382(l)(1)) and, for companies with substantial nonbusiness assets, for those assets (§382(l)(4)).
- Rate: the long-term tax-exempt rate for the month of the change (the highest of the adjusted federal long-term rates for that month and the prior two months).
- Continuity of business enterprise for two years after the change.
- Net unrealized built-in gain or loss, which can raise or lower the limit for five years after the change.
How it works
Start by testing whether the acquisition itself, together with any other shifts in the prior three years, is an ownership change. If it is, value the loss corporation immediately before the change and multiply by the published rate. That product is the most pre-change loss the company can use each year, subject also to the 80% limit for post-2017 losses.
Next, check for built-in gains. If the company's assets are worth more than their tax basis, recognizing those gains in the five years after the change can increase the limitation under §382(h). If the assets have built-in losses, those losses can be limited as well.
Finally, compare the limit with realistic taxable income projections. The NOLs are worth their present value under the limit, not their face amount, and that present value belongs in the price.
Some deals are structured to avoid an ownership change, for example by acquiring a smaller percentage. Those structures should be tested carefully, because the 5-percent shareholder rules aggregate owners in ways that are easy to miss, and §269 can disallow losses when the principal purpose of an acquisition is to obtain them.
Assumptions: Ownership change in September 2026; the value of the old loss corporation is $10,000,000; long-term tax-exempt rate 3.88% (Rev. Rul. 2026-17).; The company has $20,000,000 of NOLs, all arising in tax years beginning after 2017, and no net unrealized built-in gain or loss.; Post-change taxable income before the NOL deduction is $2,000,000 a year; corporate tax rate 21%; the business is continued for at least two years; state taxes ignored.
| Annual §382 limitation ($10,000,000 × 3.88%) | $388,000 |
|---|---|
| 80% limit on the NOL deduction ($2,000,000 × 80%) | $1,600,000 |
| NOL deduction allowed (the lower amount) | $388,000 |
| Taxable income after the NOL ($2,000,000 − $388,000) | $1,612,000 |
| Federal tax at 21% | $338,520 |
| Federal tax if there were no ownership change ($400,000 × 21%) | $84,000 |
| Years to use $20,000,000 at $388,000 a year | About 52 years |
Because the §382 limit is lower than the 80% limit, the company pays about $254,520 more tax each year than it would without an ownership change, and the NOLs take roughly 52 years to use.
Illustration only; not a projection of your results.
Risks and IRS scrutiny
The IRS examines ownership change computations, valuations, and continuity of business. Capital contributions made to inflate value can be disregarded under the anti-stuffing rule. Buying a company principally to obtain its losses can trigger §269. Poor records of historical stock ownership are a common problem, because the testing period looks back three years.
Who it is not for
This analysis matters little when there is no ownership change, because §382 does not apply. It is not for a buyer whose main reason for the deal is the losses; the §382 cap, the continuity rule, and §269 make that approach unreliable. And it is not for anyone who priced the NOLs at face value without modeling the annual limit and the 80% rule.
How ebotCPA helps
We test for an ownership change, compute the annual limitation using the current published rate, model built-in gains and losses, and estimate the present value of the NOLs so you can price them realistically. We coordinate with your attorney, who drafts the legal documents.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
We coordinate with your attorney, who drafts the legal documents.
Frequently asked questions
Does buying a company always trigger section 382?
A purchase of more than 50% of the stock by one or more 5-percent shareholders is generally an ownership change. Smaller acquisitions can also combine with other shifts in the prior three years to cross the line.
What rate applies to the 382 limitation?
The long-term tax-exempt rate for the month of the ownership change, published monthly by the IRS. For September 2026 it is 3.88% (Rev. Rul. 2026-17).
Do unused 382 amounts disappear?
No. Under §382(b)(2), unused limitation carries forward and increases the next year's limit.
Do NOLs still expire?
NOLs from tax years beginning after 2017 carry forward indefinitely but are limited to 80% of taxable income. Earlier NOLs keep their original carryforward periods.
Have facts like these?
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.