IRS Instruction 172 – Struggling with a net operating loss (NOL) on your taxes? IRS Form 172 is your key tool for calculating and carrying forward (or back) those losses. This comprehensive guide breaks down the IRS Form 172 instructions step by step, based on the latest official IRS documentation. Whether you’re an individual filer, estate administrator, or trust manager, you’ll learn how to maximize your NOL deductions, avoid common pitfalls, and stay compliant.
Download the official PDF: IRS Instructions for Form 172 (Rev. December 2024)
Last updated for tax years 2024 and beyond (as of February 2026).
What Is IRS Form 172?
Form 172, officially titled Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, is a new IRS form introduced in December 2024. It replaces parts of the old Form 1045 (Schedules A and B) for non-corporate taxpayers.
Purpose: Use it to:
- Calculate the exact amount of your NOL.
- Determine how much you can carry back (limited cases) or forward to future years.
- Figure the NOL deduction available against other years’ income.
Key fact: An NOL occurs when your allowable deductions exceed your gross income in a given year. This is common for new businesses, farmers, or those with significant investment or casualty losses.
Who Should File Form 172?
File Form 172 if you are:
- An individual with a net loss from your trade, business, or certain other activities.
- An estate or trust reporting a loss on Form 1041.
- Claiming an NOL carryforward on your Form 1040, 1040-SR, or 1040-NR.
- Carrying back an NOL (mainly farming losses) using Form 1045.
Exceptions: Partnerships and S corporations don’t file Form 172 directly—partners and shareholders use their share of losses on their personal returns.
Pro tip: Attach Form 172 to your original return if claiming a carryforward. For carrybacks, use it with Form 1045 or an amended return (1040-X or 1041).
Understanding Net Operating Losses (NOLs)
An NOL is more than just “losing money.” The IRS defines it with specific modifications to prevent inflating losses:
- Allowable sources: Trade or business deductions, certain employee expenses (limited post-2017), disaster-related casualty/theft losses, and rental activities.
- Excluded items: Most nonbusiness deductions (e.g., IRA contributions, alimony), capital losses exceeding gains, and the Qualified Business Income (QBI) deduction.
Post-2020 Rules (TCJA + CARES Act Impacts):
- No general carryback—carryforward only (indefinite).
- 80% limitation: NOLs from 2018+ can offset only up to 80% of taxable income (before the NOL itself).
- Farming losses: Special 2-year carryback allowed.
- Excess business losses: From Form 461—these automatically become NOL carryovers (e.g., a $1M Schedule C loss might yield a $738K NOL after thresholds).
Visualizing an NOL carryforward: It offsets future profits, turning red ink into tax savings.
Recent Changes to NOL Rules (2024–2026)
The Tax Cuts and Jobs Act (TCJA) and CARES Act reshaped NOLs. Here’s what’s current:
| Rule | Pre-2018 NOLs | 2018–2020 NOLs | Post-2020 NOLs |
|---|---|---|---|
| Carryback | 2 years | Up to 5 years (expired) | None (except farming: 2 years) |
| Carryforward | 20 years | Indefinite | Indefinite |
| Limitation | Full offset | 80% of taxable income | 80% of taxable income (post-2017) |
| Form | Form 1045 | Form 1045 | Form 172 (new) |
Farming exception: Carry back 2 years first, then forward. No 80% limit on the carryback portion.
Step-by-Step: How to Complete Form 172
Form 172 has two main parts. Here’s a simplified guide (always refer to the full instructions for your situation).
Part I: Calculate Your NOL Amount
This figures the raw loss available for carryover.
Key Lines (Summarized):
- Line 1: Adjusted Gross Income (AGI) minus deductions (individuals) or taxable income plus certain add-backs (estates/trusts).
- Lines 2–9: Separate nonbusiness vs. business capital gains/losses and income/deductions.
- Lines 10–23: Adjust for excess nonbusiness deductions, capital losses ($3,000 limit for individuals), Section 1202 exclusions, and prior NOLs.
- Line 24: Your final NOL (if negative).
Example: A self-employed filer with $150K business loss and $40K nonbusiness income might compute a $100K+ NOL after modifications.
Part II: Figure NOL Carryover (Deduction + Remaining Amount)
Use this for applying the NOL to prior or future years.
- Complete one column per carry year (start with earliest).
- Modified Taxable Income: Refigure income excluding the current NOL, adding back certain items.
- Line 10 (per column): NOL used this year = Deduction claimed minus modified income (can’t go below zero).
- Track remaining carryover to the next year.
Estates & Trusts: Add charitable, distribution, and exemption amounts in calculations.
Screenshot of Form 172 Part II for carryover calculations.
How to Claim Your NOL Deduction?
- Carryforward (Most Common): Enter on Schedule 1 (Form 1040), line for “Other income” (as a negative). Attach Form 172.
- Carryback (Farming Only): File Form 1045 for quick refund or amend prior returns (1040-X/1041).
- Waive Carryback: Attach a statement to your original return (irrevocable).
Deadline: Carryforwards have no expiration. Carrybacks: Within 3 years of the loss year.
Special Rules for Estates, Trusts, and Farming
- Estates/Trusts: Use amended Form 1041. NOLs can create or increase distributions.
- Farming Businesses: 2-year carryback to earliest eligible year. Define “farming” broadly (crops, livestock, nurseries)—but not reselling.
- Marital Status Changes: NOL limited to the spouse who incurred it.
- AMT Impact: Carrybacks may trigger Alternative Minimum Tax—plan accordingly.
Common Mistakes to Avoid
- Forgetting nonbusiness adjustments (overstates NOL).
- Applying the 80% limit incorrectly.
- Missing Form 461 for excess business losses.
- Not attaching Form 172 to claims.
- Ignoring state tax rules (many don’t conform to federal NOL changes).
Pro Tip: Use tax software or a CPA for complex cases involving multiple NOLs or AMT.
FAQs About IRS Form 172 and NOLs
Q: Is Form 172 required every year?
A: Only when you have an NOL to calculate or claim.
Q: Can I carry back a 2025 NOL?
A: Generally no—except for qualifying farming losses.
Q: Where do I find the latest form?
A: IRS.gov/Form172 or the PDF link above.
Q: What about excess business losses?
A: They convert to NOL carryforwards automatically after at-risk and passive rules.
Maximize Your Tax Savings with Form 172
Net operating losses are a powerful tool for smoothing income over years. By mastering IRS Form 172 instructions, you can turn business setbacks into future refunds or lower taxes.
Always double-check with the official IRS PDF and consult a tax professional for your specific situation—rules can be nuanced, especially with estates, trusts, or farming operations.
Need more help? Visit IRS.gov for Publication 536 (earlier years) or search “NOL carryforward calculator” for tools.
Sources: Official IRS Instructions for Form 172 (Rev. December 2024), IRS.gov, and related publications.
This guide is for informational purposes only and not tax advice.