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Buying Tax Credits When You Have NOLs: The 80% Limit and §38(c)
Published October 28, 2026. A corporation with a net operating loss (NOL) carryforward often pays little regular tax, and a credit can only reduce tax that exists. This page explains the interaction.
The 80% limit
For tax years beginning after December 31, 2020, the NOL deduction is the sum of NOLs from years beginning before 2018 plus the lesser of (i) post-2017 NOL carryovers or (ii) 80% of taxable income computed without the NOL, §199A and §250 deductions, reduced by the pre-2018 amount (§172(a)(2)). In practice, a corporation with only post-2017 NOLs generally still has taxable income equal to at least 20% of what it would otherwise report.
Why this matters for credit capacity
Your §38(c) capacity depends on net regular tax, which is computed after the NOL deduction. Less tax means less room.
| Example (illustrative) | No NOL | Post-2017 NOL of $10M |
|---|---|---|
| Taxable income before NOL | $5,000,000 | $5,000,000 |
| NOL deduction (80% limit) | $0 | $4,000,000 |
| Taxable income | $5,000,000 | $1,000,000 |
| Regular tax at 21% | $1,050,000 | $210,000 |
| §38(c) cap (0.75 × tax + $6,250, TMT zero) | $793,750 | $163,750 |
Assumes no other credits and a 21% rate. The unused NOL ($6,000,000 in the second column) carries forward.
What to weigh
- Don't spend NOLs for credits you cannot use. If the credit exceeds capacity it carries forward under §39, but you have paid cash for it now.
- Multi-year view. Model the years you expect to use the NOL and the credit together.
- State rules differ. Many states cap or suspend NOLs separately.
See the §38(c) limit explained and how C corporations buy credits.
Frequently asked questions
Can a corporation with NOLs still use purchased tax credits?
Yes, to the extent it has regular tax after the NOL deduction. The credit cannot exceed the §38(c) limit.
What is the NOL 80% limit?
For post-2017 NOLs in tax years beginning after 2020, the deduction is limited to 80% of taxable income computed without NOL, §199A and §250 deductions (§172(a)(2)).
What happens if my purchased credit exceeds my capacity?
The unused credit carries forward (generally one year back and 20 years forward under §39, with limits for transferred credits) and is subject to the limit each year.
Should I use NOLs before buying credits?
NOLs are applied by statute before credits are computed. Model both together with your CPA.
Owe $50k or more in federal tax?
Tell us your estimated liability and timing. We will show you what transferable credits are available and walk your CPA through the diligence.
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